How does monetary policy affect the economy?

Question

I often hear about monetary policy when discussing interest rates and inflation. How does monetary policy influence businesses and consumers?

Jackup · Answer

Monetary policy is used by governments to influence the economy through manipulation of the interest rate. The effect of low interest rates is increased borrowing and investment while high interest rates lower demand and increase inflation.

Harper · Answer

Government adopts monetary policy in order to affect its economy through manipulating the interest rate. In the case of low interest rate, there is borrowing and investments, whereas, high interest rate leads to less demand and higher inflation rate.

Answers