Economics Monetary Policy Questions
Monetary policy impacts economic stability by influencing the money supply, interest rates, and credit availability in an economy. When the central bank implements expansionary monetary policy, such as lowering interest rates and increasing the money supply, it stimulates economic growth and reduces unemployment. This policy encourages borrowing and spending, leading to increased investment and consumption. On the other hand, contractionary monetary policy, which involves raising interest rates and reducing the money supply, aims to control inflation and prevent excessive economic growth. By adjusting these key variables, monetary policy helps maintain price stability, control inflation, and promote overall economic stability.