The monetary policy regulates cash supply, controls inflation, adjusts interest rates to regulate the market, and money costs
<u>Explanation:
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Monetary policies raise flexibility in order to produce economic development. This reduces money to prevent inflation.
Three objectives of monetary policy:
- Inflation is the most important thing.
- The second aim is to reduce unemployment, but only after inflation has been controlled.
- Thirdly, low long-term interests rates should be encouraged.
The four tools to fulfil monetary policy goals:
Risk-Free rate: Federal Reserve discount funding complements monetary policy to the federal fund's goal, which provides commercial banks with backup liquidity.
Capital requirements: The amounts of funds that lenders have to hold in cash or on loan in their containers at reserve banks.
Market Activities: U.S. government bond purchase and selling has been a trustworthy device.
Reserve interest: Excess funds kept at Reserve Banks were charged for interest on deposits.
