Macroeconomics monetary policy/Monetary policy

Fiscal policy and monetary policy are the two main tools by which government attempts to steer the macroeconomy toward the three main goals and economic growth.

Monetary policy consists of methods through which the Federal Reserve attempts to engage banks, businesses, and individuals in effecting changes to interest rates, the supply of money, the demand for money, and so forth.

Money serves as a medium of exchange, a store of value, and a unit of account. Those three functions enable individuals to avoid bartering. The ways in which we define and measure money are important to managing an economy. Savings and investment are key elements within the circular flow model and are a function of interest rates.