5.3.1 Definition of monetary policy
Definition: Monetary policy is the deliberate action of the central bank (e.g. RBI, US Federal Reserve, ECB) to influence the money supply, interest rates and the availability of credit to achieve macroeconomic objectives such as price stability, growth and employment.
It is a demand-side policy: it works by shifting AD. It is often set independently of the elected government to avoid political interference. Fiscal policy (government: taxes and spending) and monetary policy (central bank: interest rates and money supply) can be used together or can conflict.
🔒 Also in the full notes
- 5.3.2 Tools of monetary policy
- 5.3.3 Expansionary and contractionary monetary policy
- 5.3.4 AD/AS analysis of monetary policy
- Exam practice: 6 practice questions
- 3 exemplar answers with full model answers and mark breakdowns
Join to unlock the full notesAlready a member? Log in