Monetary Theory

AAA

DEFINITION of 'Monetary Theory'

A set of ideas about how monetary policy should be conducted within an economy. Monetary theory suggests that different monetary policies can benefit nations depending on their unique set of resources and limitations. It is based on core ideas about how factors like the size of the money supply, price levels and benchmark interest rates affect the economy. Economists and central banking authorities are typically those most involved with creating and executing monetary policy.

INVESTOPEDIA EXPLAINS 'Monetary Theory'

In many developing economies, monetary theory is controlled by the central government, which may also be conducting most of the monetary policy decisions. In the U.S., the Federal Reserve Board sets monetary policy without government intervention. The Federal Reserve operates on a monetary theory that focuses on maintaining stable prices (low inflation), promoting full employment and achieving steady growth in gross domestic product (GDP). The idea is that markets function best when the economy follows a smooth course, with stable prices and adequate access to capital for corporations and individuals.

RELATED TERMS
  1. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  2. Monetary Control Act

    Title 1 of a two-title act passed in 1980 that represented the ...
  3. Time-Preference Theory Of Interest

    A theory that examines the nature of consumerism, and the factors ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  5. Money Supply

    The entire stock of currency and other liquid instruments in ...
  6. Real Economic Growth Rate

    A measure of economic growth from one period to another expressed ...
Related Articles
  1. Understanding Supply-Side Economics
    Economics

    Understanding Supply-Side Economics

  2. Monetarism: Printing Money To Curb Inflation
    Economics

    Monetarism: Printing Money To Curb Inflation

  3. Currency Exchange: Floating Rate Vs. ...
    Forex Education

    Currency Exchange: Floating Rate Vs. ...

  4. How The U.S. Government Formulates Monetary ...
    Personal Finance

    How The U.S. Government Formulates Monetary ...

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center