What is the primary focus of monetary policy?

The primary focus of monetary policy is on changes in the money supply. Central banks, such as the Federal Reserve in the United States, implement monetary policy to influence economic activity through the control of money availability and credit conditions. By adjusting interest rates and using tools such as open market operations, reserve requirements, and the discount rate, central banks can either expand or contract the money supply.

An increase in the money supply can stimulate economic growth and investment, as lower interest rates make borrowing cheaper. Conversely, decreasing the money supply can help control inflation, as it reduces available credit and spending in the economy. Thus, the management of the money supply is crucial for maintaining stable prices and fostering a healthy economy, making it the central focus of monetary policy.