Monetary Policy is implemented by a central bank or currency board and involves controlling money supply in order to control inflation, maintain or stimulate economic growth, lower unemployment and maintain a stable exchange rate.

Depending on the economic conditions a central bank may set a monetary policy that affects one area positively but has a negative effect on another area. For example to control inflation the central bank will decrease money supply which can lead to a slowdown in economic growth and unemployment, this would be known as a Contractionary monetary policy.

Increasing money supply would lower unemployment and increase economic growth but will eventually lead to inflation, this would be known as an Expansionary monetary policy.

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