Monetary policy affects two main economic variables: the supply of money in circulation and interest rates.

Question

Quizplus · Accepted Answer

Monetary policy is the process by which central banks use their tools (such as open market operations, reserve requirements, and discount rates) to influence the availability of money in the economy and the cost of borrowing. This, in turn, affects interest rates and the amount of money in circulation.

Monetary Policy Affects Two Main Economic Variables: the Supply of Money