Monetary Policy, Inflation and Growth

Monetary policy is the government or central bank process of managing money supply to achieve specific goals, such as constraining inflation, maintaining an exchange rate, achieving full employment or economic growth. Monetary policy can involve changing certain interest rates, either directly or indirectly through open market operations, setting reserve requirements, or trading in foreign exchange markets. It must be universally agreed that low and stable inflation is a primary and essential goal for monetary policy, in large part because economists believe that it brings stability to financial systems and fosters sustainable economic growth over the longer run.Although, monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy has the goal of raising interest rates to combat inflation.(12)- (3)
Inflation is an increase in the money supply or an increase in prices. The two most obvious versions of this, each held by some economists to be "real" inflation, are for prices of goods and services in the currency in question to rise, or for the money supply to increase. Price inflation is closely related to "cost of living" measurement, where a "basket" of goods is used as a standard and the prices of the goods are compared at two intervals and adjusting for changes in the intrinsic basket. But, technically, this is not raw inflation; it is an attempt to determine real-life value of money compared to the members of the society in question, adding other factors like increased expectations. Raw inflation measurement does not adjust for expectations, but directly measures the change in the price of goods. There are different measurements of price