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Monetary policy is one of the most significant tools of macroeconomics. It is used by the government for controlling the money supply in the economy. The government uses interest rate as a key tool to control the inflation rate in an economy. This is important to sustain the general trust in the currency of the economy. The main goals of monetary policy are to maintain low rate of inflation, low rate of unemployment and maintain a healthy economic growth and stability. Different models like the Keynesian IS-LM model and Mundell-Fleming model etc are required to understand the functioning of the monetary policy.
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