MONETARY POLICY

Regulating money supply and interest rates by a central bank, currency board, or other regulatory committee in order to influence the overall economic direction, control inflation, and stabilize currency. This is being maintained by executing actions like raising interest rates or changing the amount of money the banks need to keep the bank reserves in the vault.

A monetary policy applies three main tools: 1) buy or sell national debt, 2) change credit restrictions, and 3) change interest rates by modifying reserve requirements.