What is Monetary Policy?

Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Monetary Policy”.
Monetary policy is one of the ways that a 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. The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. 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.
The term used, is primarily used, in reference to the US Federal Reserve but has gained global recognition as central banks around the world reacted to the financial crisis and relied on actions by their specific banks to help the economic problems.
The ECB has been in the headline over the last few years as Mr. Draghi adopted monetary policy to help support the faltering Eurozone economy.
The regulation of the money supply and interest rates by a central bank, such as the Federal Reserve Board in the U.S., in order to control inflation and stabilize currency.
Monetary policy is one the two ways the government can impact the economy. By impacting the effective cost of money, the Federal Reserve can affect the amount of money that is spent by consumers and businesses.

By Barry Norman, Investors Trading Academy

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America is the richest and the most powerful country. How long it last is the the most important question.