19. Monetary policy is the Federal Reserve System's use of the banking system to influence overall spending in the economy.

19. Monetary policy is the Federal Reserve System's use of the banking system to alter the money supply and interest rates to influence overall spending in the economy. Expansionary monetary policy occurs when the Federal Reserve System increases the money supply and decreases interest rates. Lower interest rates encourage more consumption and investment spending by making it cheaper to borrow money. These loans, in turn, increase overall spending in the economy. Contractionary monetary policy occurs when the Federal Reserve System decreases the money supply and increases interest rates. Higher interest rates discourage consumption and investment spending by making it more expensive to borrow money. Fewer loans, in turn, decrease overall spending in the economy. Module 9 is devoted to explaining monetary policy.