Wednesday, February 3, 2010

Monetary Policy

Monetary Policy is the policy which allows the government, central bank,or a monetary authority to control the supply of money, the availability of money, the value of money, and interest rates in order to attain objectives such as achieving the stability of the economy.

Monetary Policy also has two different parts, and they are called contractionary and expansionary policy:

  • Contractionary Policy is aiming at restricting demand by reducing money supply.
  • Expansionary Policy is aiming to increase demand by increasing the money supply.
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Macroeconomics

Macroeconomics is like the collection of resources in a Real-time strategy game like Starcraft, right? We click on the drones and order them to get money, and once we have enough money, we build something like a supply depot to get a bigger population cap, build other buildings to research stuff to make us richer and better. Perfect world, with no inflation, no worries, and just money, BUT… we’re in real life, not the perfect world. That means that there’s inflation, privatization, and most of all, policies that deal with money. Starcraft is much simpler: it’s got no policies to worry about and no government breathing down your neck to do the job well. Well, we're done with the intro, let's get down to the specifics and technicalities.