Theory of Monetary Policy

The Theory of Monetary Policy involves strategies used by central banks, like the Federal Reserve, to manage a country's economy. By adjusting interest rates and controlling the money supply, they aim to maintain stable prices, promote employment, and foster economic growth. For example, lowering interest rates makes borrowing cheaper, encouraging spending and investment, while raising rates can help cool off an overheating economy. The effectiveness of these policies relies on balancing growth and inflation, thus influencing overall economic stability. In essence, it's a tool for guiding the economy towards desired outcomes.