Monetary policy

Introduction

This section, not surprisingly, is all about monetary policy. Monetary policy is all about the manipulation of interest rates to control the money supply and the level of inflation. This is one of the key aspects of the work of many central banks. The aim is to maintain price stability (i.e. keep inflation low and stable) and it is monetary policy that central banks (or governments) use to achieve this.

In this section you can find a simple explanation of what monetary policy is and why we need it. Once you've looked at that, you can then explore the different aspects of monetary policy in more detail. There are two main sections for you to explore:

• Inflation - monetary policy is all about the money supply, the level of economic activity, the level of interest rates and the control of inflation. Find out here all about the causes of inflation, the costs and the possible cures. Find out also about the work of the Federal Open Market Committee (FOMC) which sets interest rates.
• FOMC - setting interest rates may sound easy - you just say what they are! However, in practice it's far from that easy. Find out here about the work of the FOMC and see how they set interest rates and control the money supply.

In each section you'll find a wide variety of materials - explanations, related economic theories and worksheets to see how well you have understood the material.

There is also a little bit of history on how monetary policy has developed since the founding of the US Federal Reserve in 1913.