WHAT IS MONETARY POLICY?
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Monetary policy determines the proper supply of
money for the economy. If there is an excess of money in
circulation, borrowing becomes easier and inflation often occurs.
If there is a shortage of money in circulation, borrowing becomes
more expensive and production is often slowed.
Monetary policy seeks to find just the right balance
of money in circulation. The proper supply of money depends upon
the goals of a society. In some countries, the goal is to keep
prices stabilized—in other words, to keep inflation low. In
addition to maintaining stable prices, the United States also seeks
to promote growth in the economy through its monetary policy. This
combination of goals requires a careful balancing act.
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