what is the role of monetary policy in an economy?

Answer 1

First let's make a distinction between fiscal and monetary policy.

Fiscal policy is government's decisions to tax and spend. These decisions are made by Congress.

Monetary policy is the control of the money supply. These decisions are made by the Federal Reserve Board of Governors (Ben Bernanke is the Chairman).

The goals of monetary policy is basically to accommodate economic growth in an environment of stable prices

To do this, the FED tries to control inflation (keeping it around 2-4% per year), while maintaining growth of about 4-5% per year.

The "control levers" that the FED uses are:
* changing certain interest rates,
* setting reserve requirements (how much money banks have to hold on to and not loan out),
* buying and selling federal securities (T-bills, Treasury notes, etc.)

Hope this helps,
Good luck!

Answer 2

Monetary policy is simply controlling how much money is in the economy.

The Central Bank (Federal Reserve for the USA) can control currency printed, and deposits to some extent. When the Central Bank lets the supply get to big (loose money) then it takes more $$$ to get the same stuff (inflation). On the flip side when the Central Bank doesn't let enough money into the economy (tight money) then people can't buy anything and growth stops. So it's the Central Banks job to walk the balancing rope to make sure there is enough money, but not too much money.

In order to do this well, the Central Bank must have a good understanding of what it's people are "Demanding" through the politicians.

Answer 3

To decide how much currency the government mint will print and release into the economy (in excess of replacing damaged existing currency). Also to declare the interest rate on what the Reserve Bank will pay on loans it borrows from the public.

Answer 4

Full of Sh|ts!