What does "monetary policy" refer to?

"Monetary policy" refers to the actions taken by a central bank to manage the money supply and influence interest rates in an economy. This is primarily aimed at achieving macroeconomic objectives such as controlling inflation, managing employment levels, and ensuring economic stability. Central banks, like the Federal Reserve in the United States, use various tools—including open market operations, discount rates, and reserve requirements—to regulate how much money is circulating in the economy.

In contrast, regulating the stock market involves oversight of trading practices and investment vehicles, which is not the primary focus of monetary policy. The process of loan approval pertains to banking practices and individual credit assessment rather than the broader economic strategies encompassed in monetary policy. Taxation policies, while also influential on economic conditions, fall under fiscal policy rather than monetary policy. Therefore, understanding monetary policy as the central bank's role in managing the money supply provides clarity on its vast importance in economic management.