In more developed nations, monetary and financial policy plays a major direct and indirect role in governmental efforts designed to expand economic activity in times of unemployment and surplus capacity and to contract that activity in times of excess demand and inflation. Basically, monetary policy works on two principal economic variables: the aggregate supply of money in circulation and the level of interest rates. Expressed in traditional terms, the money supply (currency plus commercial bank demand deposits) is thought to be directly related to the level of economic activity in the sense that a greater money supply induces expanded economic activity by enabling people to purchase more goods and services. This in essence is the monetarist theory of economic activity. Its advocates argue that by controlling the growth of the money supply, governments of developed countries can regulate their nations' economic activity and control inflation.

Finance Debt Management