Monetary policy tools are essential instruments used by central banks, such as the Federal Reserve, to manage the economy's money supply and interest rates. These tools help influence economic activity, control inflation, and stabilize the currency. Common tools include open market operations, discount rates, and reserve requirements.
By adjusting these tools, central banks can either stimulate economic growth by lowering interest rates or cool down an overheating economy by raising them. The effective use of these tools is crucial for maintaining a healthy economic environment and ensuring financial stability.