Monetary Policy
Monetary policy instruments consists in managing short-term rates (Fed Funds and Discount rates in the U.S.), and changing reserve requirements for commercial banks. Monetary policy can be either expansive for the economy (short-term rates low relative to inflation rate) or restrictive for the economy (short-term rates high relative to inflation rate). Historically, the major objective of monetary policy had been to manage or curb domestic inflation. More recently, central bankers have often focused on a second objective: managing economic growth as both inflation and economic growth are highly interrelated.
Read more about this topic: Macroeconomic Policy Instruments
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