![]() Another way to put it is to say that monetary policy is expected to smooth the business cycle and offset shocks to the economy. The second goal is a stable real economy, often interpreted as high employment and high and sustainable economic growth. Today this means maintaining a sustained low rate of inflation. The first and most important is price stability or stability in the value of money. There are three key goals of modern monetary policy. More specifically, a central bank uses its tools of monetary policy-open market operations, discount window lending, changes in reserve requirements-to affect short-term interest rates and the monetary base (currency held by the public plus bank reserves) and to achieve important policy goals. One of the world’s foremost economic historians explains the forces behind the development of modern central banks, providing insight into their role in the financial system and the economy.Ī central bank is the term used to describe the authority responsible for policies that affect a country’s supply of money and credit.
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