Monetary Policy essay

Expansionary is whereby the regulatory committee or central bank will increase money supply with an aim of lowering unemployment to boost economic growth. This is to mean that with reduced rates there will be increased borrowing from the private sector and also increased consumer expenditures (Kashyap, 2004)1. On the other hand, contractionary monetary policy entails the decrease in money supply with an aim of controlling inflation following a slow economic growth. Its sometimes necessary for it controlled inflation rate though it may increase the cases of unemployment in the economy. To effect some monetary policies central banks, use a number of policies which are include, open market operations aimed at controlling money supply through the buying and selling of government bonds. Therefore, increased GDP leads to increased expenditure thereby affecting the amount of real money people hold.