Monetary policy is a plan of action that a Central Bank (like the Federal Reserve) sets in order to keep an economy stable. It’s really important to the overall health of a nation’s finances. The goal is to manage demand by manipulating a company’s money supply and tweaking interest rates.

Central Banks implement monetary policy using a few different methods:

• Open-Market Operations – Directly buying and selling securities in the open market
• Reserve Requirements – Setting regulations that dictate the minimum amount of money a bank must hold in reserve to back up its deposits
• Discount Rate – Changing the rate of interest banks charge other banks to borrow money

Tags: economics, fiscal policy, monetary policy, the fed