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.
Have a Trading Question?
Can't find an answer? Send us your question & we'll answer it