Question

how does monetary policy function to achieve economic stability? what is the role of interest rates?

Answer 1

The term monetary policy refers to federal reserve nation's central bank. It influences the amount of money and credit in the country. It consists of the process of drafting, announcing and implementing the plan of actions taken by the current bank, currency board or other monetary authority of a country.

Monetary policy is how a central bank supply of money and interest rates in an economy in order to influence output, employment and prices.

It includes open market operations, direct lending to banks, bank reserve requirements, unconventional lending programs. Economists, analysts, investors and financial experts across the globe.

Monetary policy enacted by manipulating money supply in an economy. A monetary policy that lowers interest rates and stimulates borrowing is known as an expansionary monetary policy or loose monetary policy. There are several ways in which changes in interest rates influence aggregate demand, output and prices. These are collectively known as the transmission mechanism of monetary policy.

When the Bank's own base interest rate goes up, then commercial banks and building societies will typically increase how much they charge on loans and the interest that they offer on savings.