What is the primary aim of monetary policy?

The primary aim of monetary policy is to control inflation. This involves the actions taken by a country's central bank to manage the money supply and interest rates to promote economic stability. Controlling inflation is vital because high inflation erodes purchasing power, creates uncertainty in the economy, and can lead to decreased economic growth.

By adjusting interest rates, the central bank can influence borrowing and spending behaviors among consumers and businesses. For example, lowering interest rates typically encourages spending and investment, which can stimulate economic growth. Conversely, raising interest rates usually helps to cool off an overheating economy and keep inflation in check. Hence, the focus on controlling inflation is essential for achieving long-term economic stability and growth, making it the primary aim of monetary policy.