What does monetary policy involve?

Monetary policy primarily involves regulating interest rates and controlling the money supply within an economy. By influencing these factors, monetary authorities, typically a country's central bank, can impact overall economic activity, inflation rates, and employment levels. For example, lowering interest rates can stimulate borrowing and investment, leading to economic growth, while raising rates can help cool down an overheated economy by curbing spending and inflation. The control of the money supply is pivotal as it dictates the amount of cash circulating in the economy, which plays a crucial role in maintaining price stability and fostering a healthy economic environment. This is fundamentally different from fiscal policies, which involve government spending and taxation, and regulatory standards that affect wages or trade, which do not fall under the umbrella of monetary policy.