Monetary policy refers to the measures taken by the government or the central bank to influence economic activities, especially the measures to control the money supply and adjust interest rates.
According to the impact on total output, monetary policy can be divided into two categories: expansionary monetary policy (active monetary policy) and tight monetary policy (prudent monetary policy). When the economy is depressed, the central bank takes measures to reduce interest rates, which leads to an increase in money supply, stimulates investment and net exports, and increases aggregate demand, which is called expansionary monetary policy.
On the other hand, when the economy is overheated and the inflation rate is too high, the central bank takes a series of measures to reduce the money supply, so as to raise interest rates, curb investment and consumption, slow down or slow down the growth rate of total output, and control the price level at a reasonable level. This is the tightening monetary policy.
Extended data:
Essence:
Money is essentially a contract between owners about exchanging rights, and different forms of money are essentially unified. In the past, because people didn't know the essence of money clearly, they mistakenly divided money into different types from different angles.
For example, according to the commodity value of currency, it is divided into debt currency and non-debt currency, and according to whether the exchange ratio of precious metals is agreed, it is divided into convertible currency and non-convertible currency.
Formally, according to the commodity value of money, it can be divided into physical money and formal money. Physical currency itself is a special commodity, including value, such as sheep and precious metals. Formal currency itself has no value, its value is agreed by contract, only the contract value. The two are different in form, but they are essentially unified.
That is, they are all agreed as exchange media, and they all have contractual value. The purchasing power of money depends on the contract value of money, but the purchasing power of physical money will also be affected by its own commodity value. Usually, the commodity value of physical currency is less than its contract value as currency.
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