What is the goal of monetary policy?
Monetary policy decisions can be either contractionary or expansionary. Contractionary monetary policy is also known as “tightening” or “restrictive” policy and is designed to slow down economic growth and/or reduce the inflation rate. On the other hand, expansionary monetary policy, also known as “loosening” or “accommodative” policy, is designed to increase economic growth by encouraging borrowing and spending.
When it comes to the actual goals, it depends on the nation. In the United States, the Federal Reserve makes policy decisions with three main objectives in mind. It wants to keep inflation low and maximize employment (these two things are referred to as the Fed’s dual mandate) and wants to keep interest rates moderate over the long run.