Monetary Policy

AAA

DEFINITION of 'Monetary Policy'

The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).

INVESTOPEDIA EXPLAINS 'Monetary Policy'

In the United States, the Federal Reserve is in charge of monetary policy. Monetary policy is one of the ways that the U.S. government attempts to control the economy. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow. In general, the U.S. sets inflation targets that are meant to maintain a steady inflation of 2% to 3%.

RELATED TERMS
  1. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...
  2. Fiscal Cliff

    A combination of expiring tax cuts and across-the-board government ...
  3. Economic Stimulus

    Attempts by governments or government agencies to financially ...
  4. Monetary Base

    The total amount of a currency that is either circulated in the ...
  5. Accommodative Monetary Policy

    When a central bank (such as the Federal Reserve) attempts to ...
  6. Tight Monetary Policy

    A course of action undertaken by the Federal Reserve to constrict ...
Related Articles
  1. What's the difference between monetary ...
    Economics

    What's the difference between monetary ...

  2. The Treasury And The Federal Reserve
    Bonds & Fixed Income

    The Treasury And The Federal Reserve

  3. How Much Influence Does The Fed Have?
    Economics

    How Much Influence Does The Fed Have?

  4. Consumer Spending As A Market Indicator
    Markets

    Consumer Spending As A Market Indicator

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center