Monetary policy

Monetary policy is the use of central-bank actions to influence interest rates, credit, and the supply of money, shaping inflation and economic activity.

Policy interest rate: A central bank’s benchmark rate for short-term borrowing or lending that guides other interest rates. Changing this rate is the most familiar way central banks influence borrowing costs.
Inflation targeting: A monetary-policy framework in which a central bank publicly commits to a numerical inflation goal. It gives policy decisions a stated price-stability objective.
Fiscal policy: Government decisions about taxation, spending, and borrowing that influence economic activity. It can support or offset monetary policy, but is set through public budgets rather than central-bank tools.
Inflation: A sustained increase in the general level of prices that reduces money’s purchasing power. Price stability is a central objective of many monetary authorities.
Milton Friedman: An American economist who advanced monetarism and argued for a stable, predictable monetary framework. His work renewed focus on money’s role in inflation and policy.
Open market operations: Central-bank purchases or sales of securities to affect bank reserves and short-term interest rates. These transactions implement rate targets and can alter liquidity in financial markets.
Quantitative easing: Large-scale central-bank asset purchases intended to ease financial conditions, often when policy rates are near zero. It provides another way to stimulate demand when conventional rate cuts are constrained.
Monetarism: An economic school emphasizing the effects of money supply growth on nominal income and inflation. It advocates a particular account of monetary influence, not the full range of modern policy frameworks.
Unemployment: The condition of people without work who are available for and seeking employment. Policy changes can affect hiring through their influence on demand and production.
John Maynard Keynes: A British economist whose theories reshaped macroeconomics and emphasized aggregate demand. Keynesian ideas helped establish active stabilization policy as a central economic question.

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