Monetary policy is by adjusting the amount of currency in circulation, and its influence on the economic policy. There are generally three kinds of regulating the money supply tool:
(1) open market operations, namely in the open market purchases of government bonds. In the period of economic recession, insufficient aggregate demand, the central bank purchases of government bonds to the enterprises and individuals in the open market, the money market; in the economic overheating, the central bank sells government bonds, currency from circulation.
(2) discount rate policy. The discount rate is commercial bank loans to the central bank's interest rate. The central bank lowered the discount rate, will increase the commercial bank loans; higher discount rate,Reduce the commercial bank loans. Therefore, the discount rate adjustment, can change the loan demand. If you need to stimulate the economy, can reduce the discount rate; if the economy is overheated, the increase in the discount rate.
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