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MONETARY POLICY  Broadly construed, any policy relating the supply or use of money in the  economy. The coordinated adaptation of the credit control powers of the  monetary authorities of a country exercised through the central bank upon the  banking system, pursuant to a policy, e.g., of ease or restraint, relative to the  economic situation. The usual objectives of such a policy would be to achieve  stability in prices by countercyclical action upon the money supply, allowing  over time for growth in the economy. Since the bulk of the effective money  supply   in   modern   credit   systems   is   bank   deposit   currency   created   by  expansion in bank loans and investments, monetary policy affects the money  supply through effect upon available (excess) reserves of the banks, which are  the basis for their expansion in loans and investments and hence in bank  deposits. Monetary policy also affects the cost of bank credit by changes in  the central bank's rates for rediscounts, loans, and advances to the banks,  which would be reflected in turn in bank lending rates to customers and open  market money rates. In the U.S., monetary policy is determined by the Board of Governors of  the  FEDERAL   RESERVE   SYSTEM The efficiency of monetary policy, through its effect upon the money  supply, is best in the demand-pull type of inflation financed extensively by  bank credit, i.e., and expanded money supply relative to the supply of goods  and services, causing a rise in prices. The efficacy of monetary policy is 
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This note was uploaded on 04/10/2012 for the course ECON 101 taught by Professor Gonalez during the Spring '12 term at Université de Bourgogne.

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