ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

Detailed explanation-2: -Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity.

Detailed explanation-3: -The Federal Open Market Committee sets U.S. monetary policy in accordance with its mandate from Congress: to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy.

Detailed explanation-4: -Monetary policy involves the management of the money supply and interest rates by central banks.

Detailed explanation-5: -When the Fed wants to adjust interest rates, it moves the range set by IORB and ON RRP rates higher or lower. This causes the banks to raise or lower their interest rates correspondingly. In turn, these rates affect all other interest rates in the economy.