What is MONETARY POLICY?

Government’s chosen economic strategy, deciding to increase or decrease the country’s money supply. A monetary policy is typically applied through the central bank. Three major tools are: (1) buying or selling national debt, (2) changing credit restrictions, and (3) changing interest rates and reserve requirements. In control of the aggregate demand it plays the dominant role over, by extension, of economic inflation. Also known as monetary regime. Also refer to monetarism.

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