What is monetary policy and how does it influence the economy?

Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates in an economy. The primary goal of monetary policy is to maintain price stability, control inflation, and support economic growth. Central banks adjust interest rates to influence borrowing and spending behavior. Lower interest rates typically stimulate economic activity by encouraging borrowing, while higher rates can slow down inflation by discouraging excessive borrowing. Through its control of money supply and credit conditions, monetary policy plays a significant role in managing economic cycles and ensuring financial stability.