What is Monetary policy?
Monetary policy: Central bank actions on interest rates and money supply to steer the economy.
Where Monetary policy fits
Monetary policy is part of Money & Prices in Economics. Money and prices move together: inflation lowers purchasing power, interest rates set borrowing costs, and elasticity shows how demand reacts to price changes.
Practical tip
Think in real values after inflation, not just nominal ones.
Related terms
- Inflation
- A general rise in prices that reduces what money can buy.
- Price elasticity
- How strongly demand reacts to a price change.
- Deflation
- A general fall in prices that raises money's buying power.
- Money supply
- The total amount of money in an economy.
- Central bank
- The institution managing a country's money and interest rates.
- Real interest rate
- The interest rate adjusted for inflation.
Formulas you will use with it
Test yourself
Which term means: “Central bank actions on interest rates and money supply to steer the economy.”?
Monetary policy · Money supply · Price elasticity
Answer: Monetary policy
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