Monetary policy is a powerful tool in influencing economic activity from "summary" of The Economics of Money, Banking and Financial Markets, eBook, Global Edition by Frederic S. Mishkin
Monetary policy refers to the actions undertaken by a central bank, such as the Federal Reserve in the United States, to control the money supply and interest rates in order to achieve macroeconomic objectives. By adjusting the money supply and interest rates, central banks can influence economic activity, such as consumption, investment, and employment levels. One of the main ways in which monetary policy affects economic activity is through its impact on interest rates. When a central bank lowers interest rates, borrowing becomes cheaper, leading to increased consumption and investment. This, in turn, stimulates economic activity and can help to boost overall economic growth. On the other hand, when a c...
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