Sample Essay

According to an orthodox definition, it is known and assumed that monetary policy is about the manipulation of interest rates. However, there is more to it than just controlling the interest rates of an economy.

As a matter of fact, the monetary policy of any country could be deemed responsible for a wider category of three forms. This would include, controlling the money supply, maintaining the amount of credit allowed by banks and controlling the country’s interest rates (Sloman 556).

Monetary Policy is set keeping in mind the targeted inflation rate and achieving the target set for the exchange rate and growth of money supply. For these reasons, it is to be decided as to which organization is to set the policy; the government or the central bank or the latter with respect to rules put forward by the government itself. Thus, it would rather seem impossible to keep a correlation between political behavior and outcomes without acknowledging both the institutions’ roles (Morris 31).

Governments aim at controlling the money supply from growing extensively in the long term so that inflation could well be kept under control. While for the short term, the purpose of setting up the monetary policy is to ease out business cycle fluctuations.

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