Monetary Policy
Monetary policy refers to the actions of a central bank, such as the Federal Reserve in the United States, to control the money supply and interest rates to promote economic growth , stability , and low inflation . *Objectives of Monetary Policy:* 1. * Price Stability :* To keep inflation low and stable, usually around 2-3% annual rate. 2. * Maximum Employment :* To promote job creation and maintain low unemployment rates. 3. * Moderate Long-Term Interest Rates :* To keep long-term interest rates stable and moderate. *Tools of Monetary Policy:* 1. * Open Market Operations (OMO) :* Buying or selling government securities on the open market to increase or decrease the money supply. 2. * Reserve Requirements :* Setting the minimum amount of reserves that commercial banks must hold against deposits. 3. * Discount Rate:* Setting the interest rate at which commercial banks borrow money from the central bank. 4. * Forward Guidance :* Communicating the central bank's future policy int...