monetary policy

Definition

The regulation of the money supply and interest rates by a central bank, such as the Federal Reserve Board in the U.S., in order to control inflation and stabilize currency. Monetary policy is one the two ways the government can impact the economy. By impacting the effective cost of money, the Federal Reserve can affect the amount of money that is spent by consumers and businesses.

Use monetary policy in a sentence

In the US, the Federal Reserve controls monetary policy with the goal of maintaining a healthy and stable inflation rate.

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International Fisher Effect Federal Reserve Bank of Chicago