Monetary policy affects market stability from "summary" of Business Cycles and Equilibrium by Fischer Black
Monetary policy plays a crucial role in maintaining market stability. By influencing interest rates and money supply, central banks can affect the overall economic conditions and the behavior of market participants. For example, when central banks lower interest rates, borrowing becomes cheaper, leading to increased spending and investment in the economy. This, in turn, can stimulate economic growth and boost market confidence. Conversely, when central banks raise interest rates, borrowing becomes more expensive, which can discourage spending and investment. This can lead ...
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