Monetary Policy

GAO Glossary of Terms and Definition (September 2005)

Monetary Policy (Economics Term)

A policy affecting the money supply, interest rates, and credit availability that is intended to achieve maximum sustainable output and employment and to promote stable prices (interpreted as a low-inflation environment in practice). Monetary policy is directed by the Federal Reserve System. It functions by influencing the cost and availability of bank reserves through (1) open-market operations (the purchase and sale of securities, primarily Treasury securities), (2) changes in the ratio of reserves to deposits that commercial banks are required to maintain, (3) changes in the discount rate, and (4) changes in the federal fund rate. (See also Discount RateFiscal Policy.)

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Monetary Policy: Management of the money supply, under the direction of the Board of Governors of the Federal Reserve system, with the aim of achieving price stability and full employment. Government actions in guiding monetary policy, include currency revaluation, credit contradiction or expansion, rediscount policy, regulation of bank reserves and the purchase and sale of Government securities. (See Fiscal Policy.)

[The Congressional Budget Process: An Explanation, Appendix J (Glossary), Committee on the Budget of the U.S. Senate, S. Prt. 105-67 (Revised December 1998).]



Mixed-Ownership Government Corporation


Money Supply