What does the term 'Monetary Policy' most accurately describe in the context of global economics?
A. Goods and services sold to other countries
B. Government spending on public projects
C. Control of money supply by the central bank
D. An individual's ability to invest in stocks
Answer (1)
The correct answer is letter C. Control of money supply by the central bankMonetary Policy is the process by which a central bank, such as the Bangko Sentral ng Pilipinas (BSP), manages the money supply and interest rates to influence a country's economy. Effect of Monetary Policies by BSPPrice Stability – Keeping inflation under controlFull Employment – Making sure people can find jobsEconomic Growth – Supporting business activitiesMonetary Policies Set by BSPInterest Rates – It can raise rates to slow inflation or lower them to encourage spending.Reserve Requirements – It tells banks how much money they need to keep in reserve.Open Market Operations – It buys or sells government securities to control liquidity.For example, during the COVID-19 pandemic, the BSP lowered interest rates so that more people and businesses would borrow money and keep the economy moving.Monetary policy is very powerful, but it must be used carefully. If there’s too much money in the economy, prices can rise too fast (inflation). If there’s too little, businesses may close and people may lose jobs.Understanding monetary policy helps students grasp how the government controls the economy without directly telling businesses what to do.
