The actions a central bank takes to control the money supply and interest rates in an economy. These tools are used to influence inflation, employment, and overall economic growth. Common tools include raising or lowering interest rates and buying or selling government bonds.
If inflation is running too high, a central bank might raise interest rates from 2% to 3% to make borrowing more expensive. This discourages people and businesses from spending and borrowing as much, which helps cool down rising prices.
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