Monetary policy is the use of control over the money supply by a central bank or other regulatory authorities, generally with the goal of stabilizing prices and achieving sustainable economic growth.
Here are some of the main points you can cover when teaching about monetary policy:
-
Expansionary vs. Contractionary Monetary Policy – Expansionary monetary policy is the practice of increasing the money supply to encourage economic growth, while contractionary monetary policy is the practice of decreasing the money supply to avoid runaway inflation.
-
Interest Rates – Interest rates are one of the primary tools of monetary policy, as a central bank can increase or decrease its target interest rate to signal whether it is pursuing an expansionary or contractionary policy.
-
Impact of Lower Interest Rates – Low interest rates encourage borrowing, investment and spending, all of which can contribute to economic growth.
-
Impact of Higher Interest Rates – High interest rates discourage borrowing, investment and spending, all of which can slow economic growth.
-
Quantitative Easing – Quantitative easing is a type of expansionary monetary policy in which a central bank purchases assets such as government bonds in order to increase the money supply.
-
Unconventional Monetary Policy – Unconventional monetary policies, such as negative interest rates, are used in times of extreme economic depression or stagnation.
-
Examples – A few examples of central banks using monetary policy to affect their local economy include the US Federal Reserve’s use of quantitative easing and the European Central Bank’s adoption of negative interest rates.