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1 Found helpful • 10 Pages • Topic Notes • Year: Pre-2021
What is Monetary Policy? • Price of Money: Monetary policy involves action by the RBA to influence the cost and availability of money and credit. Monetary policy controls interest rates or the price of money. This in turn affects the money supply and the demand for money. • Macroeconomic Policy: Monetary policy is one of the arms of macroeconomic policy and is therefore macroeconomic in nature. • Business Cycle: All market based economies experience fluctuation in the level of economic activity called the trade or business cycle. Monetary policy is one of the tools used by government to smooth out fluctuations in this business cycle. • Level of Economic Activity: Monetary policy can be used to control the level of economic activity, output, employment and prices.
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