Monetary Policy

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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%.

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  4. How is the Macaulay duration related to fixed income markets?

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  6. How do open market operations affect the overall economy?

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  7. How does the law of supply and demand affect monetary policy in the United States?

    The law of supply and demand affects monetary policy in the United States through the adjustment of interest rates. Interest ... Read Full Answer >>
  8. How does expansionary economic policy impact the stock market?

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  9. How do fiscal and monetary policies affect aggregate demand?

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  10. Which is more effective: expansionary fiscal policy or expansionary monetary policy?

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  11. What are some examples of expansionary monetary policy?

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  12. What are the implications of a low Federal Funds Rate?

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  14. What can policymakers do to decrease cyclical unemployment?

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  15. What are some examples of successful implementation of monetary policy?

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  17. What is the difference between fiscal policy and monetary policy?

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  19. What's the difference between monetary policy and fiscal policy?

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