Monetary policy is the management of money by the central bank in order to achieve "economic growth, full employment, and price stability" according to our lesson. The instruments of monetary policy are manipulations to interest rates, the money supply, and credit. They use open-market operations (buying and selling bonds), the reserve ratio (the percentage of deposits that banks must store at Federal Reserve banks or in vaults), and the federal fund rate (the interest rate on the Fed's loans to other banks) in order to achieve their goals.

When expansionary monetary policy is happening like during a recession, the Fed buys bonds and decreases reserve ratios and interest rates. When the reserve ratio is lower, banks don't have to hold back as much money, which means they have more to lend out and profit from. When interest rates decrease, investment will increase, therefore increasing economic growth. Businesses will benefit during this time because of increased demand and more investment opportunity. Contractionary monetary policy is the opposite- the Fed sells bonds, increases reserve ratios so banks can't lend out as much, and raises interest rates to drive down investment and inflation, which cools the economy. During this time, businesses will have to hold back on investment and will see lower consumer demand and profits.