What is the role of monetary policy?

Governments have two types of regulations in terms of money management, fiscal policy and monetary policy. Fiscal policy determines how governments receive money through taxes and spend these incomes. The role of monetary policy is to manipulate the availability of the currency of the nation, so that inflation and national unemployment rate are low. The low unemployment rate helps to maintain the economy healthy, because those employed workers are also consumers with money to spend products and services that different companies offer. When consumers buy, businesses earn money and can afford to continue employment - and hire more - workers who in turn act as consumers. This is the results of growing prices, which means that the purchasing power of each unit of the currency decreases. Governments want to keep inflation to a minimum because the rising price level damages consumers to buy goods and services. In addition to damaging consumers, it hurts companies whose goods and services do not buy consumers. That pand the economy hurts.

The role of monetary policy in promoting economic growth usually takes a form that makes it easier for businesses to acquire loans and a loan to expand their operations and entrepreneurs to raise money to start new businesses. The government central bank can do this by reducing the reserve requirements or the percentage of liabilities that the bank must legally maintain as a liquid currency. This then allows banks to provide more loans and issue more credit than possible with higher reserve requirements. Central banks can also support economic growth by increasing money inventory or the total amount of the nation's currency that is in circulation.

In order to limit the amount of money that is in circulation in circulation to maintain the value of each currency. This includes steps that are contradictory to those that promote economic growth. These include increasing reserve requirements for banks and reducing the nation's money stock.

The call will inherit in the role of monetary policy that governments cannot promote economic growth without risking inflation, and cannot take steps to maintain low inflation without risking economic slowing, and an adequate increase in unemployment rates. This requires governments to prefer either economic growth or maintain low inflation at any given moment. In general, the central banks deal with this dilemma by taking modest steps towards Keep inflation low at the time of economic growth and risk of inflation to promote economic growth when economies are in recesses or depression.