Monetary policy

Monetary policy is the process by which the government, central bank, or monetary authority

of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money

or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy.[1] Monetary theory provides insight into how to craft optimal monetary policy.

Nowadays , the big problem of the world is recession. Because of that, the rate of unemployment increase fast, what should the government do to help recession goes down?

According to the monetary policy, they can change the interest rate. In order to deal with

recession, the government need increase the AD, so they need decrease the interest rate ,

then saving will go down, but it is easy to borrow money, thus , more and more investment

will build. So if demand goes up, investment increase, the company want to recruit people

which is increase their labour force,therefore the unemployment rate will decrease, more

and more people ,who without job or seek job ,can have a job.

Also monetary policy can help decrease inflation. Inflation means the is a rise in the general

level of prices of goods and services in an economy over a period of time. So if the government

want to make inflation rate goes down, the need deal with the price level first. But do not

should decrease the price level directly, the government will increase the interest rate first,

if the interest rate goes up , people will saving more, and the consumption will decrease, so

the AD will decrease, leading to the price level decline. Thus inflation will decrease.
But monetary policy can not deal with unemployment and inflation at the same time,

they are ambivalent, so the government need trade-off .