Monetary Policy

Monetary policy is the process used by a government or central bank to control the supply, availability and value of money. Monetary policy determines how much money is printed and the level of interest rates, thus impacting the overall economy, with an emphasis on credit in particular. Monetary policy is often confused with fiscal policy, which is the use of government spending and taxation to try and influence or improve the economy of a country. While they often have similar goals, the practices are much different.

There is an economic balance that monetary policy hopes to achieve in a country’s economy. When the supply of money and interest rates are too low, unemployment can result and put an undue burden on an economy. Conversely, exceedingly high interest rates or a surplus of money can cause inflation, which can be equally as damaging.