Monetary Policy Law and Legal Definition
Monetary policy is a method adopted by the monetary authority of a country to control the supply, availability, and cost of money. Growth and stability of an economy is achieved through such policy. A monetary policy aims to stabilize prices, reduce unemployment, achieve economic growth, and strike a balance of external payments. Through a monetary policy, a government attempts to influence the overall level of economic activity in line with its political objectives. In the U.S., such measures are usually taken by the Central Bank.Inflation of an economy is balanced to a great extent by a reasonable monetary policy.
A monetary policy can be an expansionary policy or a contractionary policy. An expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply.