Monetary policy

Monetary policy is like a grown up game of pretend. Governments play pretend with money and how much of it to have around. They decide how available money and credit should be, or how tight the money supply should be. When the government doesn't want too much money around, they make it harder to get, usually by raising the interest rate on money. This makes it more expensive for people and businesses to borrow money, meaning less gets spent. When the government wants more money around, they make it easier to get, usually by lowering the interest rate. This makes it cheaper for people and businesses to borrow money, meaning more money is spent. The government uses monetary policy to try and make sure that the economy runs smoothly.