Controlling the money supply refers to the actions taken by a central bank or other monetary authority to regulate the amount of money in circulation within an economy. This is typically done through a combination of tools, including setting interest rates, buying and selling government securities, and adjusting bank reserve requirements.
Controlling the money supply is important for several reasons. First, it helps stabilize the economy. By increasing the money supply, a central bank can stimulate economic growth and reduce unemployment. Conversely, by decreasing the money supply, a central bank can help cool an overheating economy and reduce inflation. Second, controlling the money supply helps maintain the value of a country’s currency. By preventing the money supply from growing too quickly, a central bank can help prevent inflation and protect the purchasing power of its currency.