Answer:
Monetary policy is the process by which the central bank (e.g. the Federal Reserve in the United States) uses its monetary tools to influence the supply of money and credit in the economy in order to achieve its objectives, such as stable prices, maximum employment, and moderate long-term interest rates.
There are several tools that the central bank can use to affect the economy as a whole through monetary policy:
Interest rates: The central bank can adjust the target federal funds rate, which is the interest rate at which banks lend and borrow overnight funds from each other, in order to influence the cost of borrowing money in the economy.
Reserve requirements: The central bank can adjust the percentage of deposits that banks are required to hold in reserve, which can affect the amount of money that banks have available to lend.
Open market operations: The central bank can buy or sell government securities in the open market in order to increase or decrease the supply of money in the economy.
Discount rate: The central bank can adjust the discount rate, which is the interest rate at which banks can borrow money from the central bank, in order to influence the cost of borrowing money in the economy.