Description

Description: The course provides experience in research and application for understanding and addressing sources of market failure; structural market failure; transactional and natural market failure in the process of economic policy making.

Background: What is Monetary Policy?

The actions of a central bank, currency board, or other regulatory committees that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).

In the United States, the Federal Reserve is in charge of monetary policy. Monetary policy is one of the ways that the U.S. government attempts to control the economy. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow. In general, the U.S. sets inflation targets that are meant to maintain steady inflation of 2% to 3%.
What are the Objectives of Monetary Policy?

The Reserve Bank Board sets interest rates so as to achieve the following objectives:

• the stability of the currency
• the maintenance of full employment
• the economic prosperity and welfare of the people

Monetary policy aims to achieve this over the medium term so as to encourage strong and sustainable growth in the economy. Controlling inflation preserves the value of money. In the long run, this is the principal way in which monetary policy can help to form a sound basis for long-term growth in the economy.