Question

When people believe that a central bank will stick with its policy, monetary policy is likely to have:______.

Answer 1

When people believe that a central bank will stick with its policy, monetary policy is likely to have a monetary policy.

Monetary policy has lived under many disguises. But whatever it looks like, it generally boils down to adjusting the economy's money supply to achieve a combination of inflation and stabilizing output. Most economists would agree that since output (usually measured by Gross Domestic Product (GDP)) is fixed over time, changes in the money supply only result in changes in prices.

However, changes in the money supply can affect the actual production of goods and services in the short run, as prices and wages usually do not adjust quickly. Monetary policy, generally conducted by central banks such as the US Federal Reserve (Fed) and the European Central Bank (ECB), is, therefore, a useful policy tool for achieving both inflation and growth targets.

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