Monetary policy influences interest rates from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Monetary policy plays a crucial role in shaping interest rates within an economy. The central bank, through its various tools, can influence the level of interest rates prevailing in the market. By adjusting the supply of money in the economy, the central bank can effectively impact the interest rates. When the central bank decides to increase the money supply, it puts downward pressure on interest rates. This is because with more money available in the system, individuals and businesses are able to borrow at lower rates. Lower interest rates stimulate spending and investment, which can help boost economic activity. Conversely, if the central bank decides to decrease the money s...
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