Monetary policy refers the action of central bank to stabilize prices and employment.

Monetary policy refers to the actions taken by a country's central bank to control the amount of money in circulation and interest rates, with the aim of stabilizing prices and maintaining low unemployment. Here are the steps central banks typically take to implement monetary policy:

1. Setting Interest Rates: The central bank can increase or decrease the interest rate at which it lends money to commercial banks. A lower interest rate encourages borrowing and spending, which stimulates economic growth, while a higher interest rate discourages borrowing and spending, which slows economic growth.

2. Open Market Operations: The central bank can buy or sell government bonds to commercial banks. When the central bank buys bonds, it injects money into the economy, increasing the money supply and stimulating economic growth. When it sells bonds, it takes money out of the economy, decreasing the money supply and slowing economic growth.

3. Reserve Requirements: The central bank can change the amount of money that commercial banks must hold in reserve. A lower reserve requirement allows banks to lend more money, which increases the money supply and stimulates economic growth. A higher reserve requirement forces banks to hold more money, which decreases the money supply and slows economic growth.

4. Discount Window Lending: The central bank can lend money directly to commercial banks through the discount window. This provides banks with more money to lend to businesses and consumers, which can stimulate economic growth.

5. Forward Guidance: The central bank can communicate its future monetary policy plans to the public. This can influence expectations and behavior, which can in turn affect economic growth.

These actions can help stabilize prices by controlling inflation and deflation, and maintain low unemployment by stimulating economic growth when necessary. However, they must be used carefully to avoid causing economic instability.