what is monetary policy
Definition of 'Monetary Policy'. Definition: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
Monetary policy is the Fed.s role in supplying money to the economy to influence aggregate economic performance. Monetary theory is the study of the effect of money on the economy. Economists believe that a change in the money supply affects the economy through two channels: 1. Indirect channel  Changes in the money supply affect AD through changes in the interest rate. 2. Direct channel  Changes in the money supply directly affect how much people want to spend.