Central banks are really important for managing how an economy works. They help keep prices stable while also trying to make the economy grow. They do this mainly through something called monetary policy, which affects interest rates and how much money is out there. Let's break it down:

What Are Inflation and Economic Growth?

• Inflation is when prices for things like food and gas go up. This means that your money buys less than it used to.
• Economic Growth means the economy is getting better because more goods and services are being made. It's often measured by something called Gross Domestic Product (GDP).

What Do Central Banks Do?

Central banks have two big jobs: keeping prices stable and helping the economy grow. They do this mostly by changing interest rates and controlling the money supply.

1. Interest Rates:

   • If the economy is doing poorly, central banks might lower interest rates. For example, if the Bank of England drops the base rate from 1% to 0.5%, it's cheaper to borrow money. This can encourage businesses to invest and people to spend, which helps the economy grow.
   • If prices start to go up a lot (like during high inflation), they might raise interest rates. For example, raising the rate to 2% makes borrowing more expensive. This can slow down spending and help bring prices back down.

2. Money Supply:

   • Central banks can also control how much money is available in the economy. They can use a method called quantitative easing to add more money when the economy is struggling. This helps get more people to lend and invest money.
   • On the other hand, if the economy is doing really well and prices are rising too fast, they might take some money out of circulation to keep things from overheating.

Finding the Right Balance

Balancing these two jobs—controlling prices and promoting growth—is tricky, kind of like walking a tightrope. For example, during the COVID-19 pandemic, many central banks lowered interest rates and added money to help the economy recover. But as the economy got better, they became worried about rising prices, which made them rethink what to do next.

In short, central banks carefully change interest rates and the money supply to keep a good balance between inflation and economic growth. Their goal is to create a stable economy that works for everyone.