3. •Action of Central Bank to control the
money supply.
•Instrument for achieving the objectives of
general economic policy.
•Affects interest rate.
•Maintained through actions such as
modifying the interest rate, buying or
selling government bonds, and changing
the amount of money banks are required
to keep in the vault (bank reserves).
4. TYPES
There are two types of Monetary Policy; they
are:
a. Expansionary Monetary Policy
b. Contractionary Monetary Policy
5. a. Expansionary Monetary
Policy
When a central bank uses its tools to
stimulate the economy. That increases
the money supply, lowers interest rates and
increases aggregate demand, this policy is
Expansionary monetary policy .
6. It is a type of monetary policy implemented
by central banks that decreases the money
supply of an economy and thus makes money
and credit less accessible to individuals and
businesses in an effort to combat inflation.
b. Contractionary Monetary
Policy
