Macroeconomic Impact on Business Operations Monetary policy is a tool that a national government uses to influence its economy. This policy controls the money supply, influences interest rates and overall economic activities. Monetary policy has an effect on several macroeconomic factors. These factors are GDP, which represents gross domestic product, unemployment, inflation and interest rates. Monetary policy influences all types of economic and financial decisions that consumers tend to make. The goal of monetary policy is to achieve and promote price level stability, full employment, and economic growth (McConnell and Brue, p. 268). It affects the consumer when trying to get a loan to buy a new house or car or even to start a business, whether to expand a business or to save money in the bank. Furthermore, since the United States is the largest economy in the world, its monetary policy has significant economic and financial effects on other countries as well. Monetary policy that persistently attempts to keep short-term real rates low will eventually lead to higher inflation and higher nominal interest rates, without permanent increases in output growth or decreases in unemployment. Inflation is the loss of purchasing power of a monetary unit such as the dollar, usually expressed as a general increase in the prices of goods and services. When inflation occurs, fewer products and services are purchased. How does monetary policy affect inflation? Politics also directly affects inflation through people's expectations about future inflation. For example, suppose the Federal Reserve Bank eases monetary policy. If consumers and business owners believe this will mean higher inflation in the future, they will demand greater wage and price increases.