Monetary policy refers to the actions of a central bank to influence a nation's money supply and economy. Monetary policy is used to influence the employment situation and to manage inflation. Monetary policy can also be described as a policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply. It is often targeted at inflation or the interest rate to ensure price stability and general trust in the currency. Unlike fiscal policy, which relies on taxation, government spending, and government borrowing, monetary policy aims to manipulate the money supply, i.e. 'printing' more money or decreasing the money supply by changing interest rates or removing excess reserves. Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies. Monetary policy is referred to as being either expansionary or contractionary. Expansionary policy occurs when a monetary authority uses its tools to stimulate the economy. An expansionary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual. It is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that less expensive credit will entice businesses into expanding. Contractionary monetary policy maintains short-term interest rates higher than usual, slows the rate of growth in the money supply, or even shrinks it to slow short-term economic growth and lessen inflation. Contractionary monetary policy can lead to increased unemployment and depressed borrowing and spending by consumers and businesses, which can eventually result in an economic recession if implemented too vigorously. --- This episode is sponsored by · Anchor: The easiest way to make a podcast. https://anchor.fm/app