Answer to Question #48257 in Macroeconomics for Joshua

Question

Monetary policy is used in many government as a stabilising factor and its tools. Discuss.

Answer 1

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 as bank reserves.
Monetary policy is one of the ways that the 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 developed countries set inflation targets that are meant to maintain a steady inflation of 2% to 3%.