Definition: Central bank actions to control the money supply and interest rates to achieve economic goals.
The Federal Reserve (or other central banks) conducts monetary policy to promote stable prices, full employment, and moderate interest rates. Expansionary policy (lower rates, more money) stimulates borrowing and spending. Contractionary policy (higher rates, less money) cools inflation. Tools include open market operations, reserve requirements, and the discount rate.
In 2020, the Fed cut rates to near zero and bought trillions in bonds (quantitative easing) to support the economy. In 2022-23, rapid rate hikes fought inflation.
Monetary policy is essential on AP Macro. You
Category: Macroeconomics