Central banks are very important for keeping the economy stable. They do this by using something called monetary policy. But they have some big challenges to deal with.

1. Interest Rates:

   • When central banks lower interest rates, it can help people borrow more money. This is good, but it can also make the economy too hot and cause prices to rise too fast, which is called inflation.
   • On the other hand, if they raise interest rates to fight inflation, it can slow down the economy and create more unemployment.

2. Money Supply:

   • Controlling how much money is in the economy is tricky. If there’s too much money, it can lead to hyperinflation, where prices go up extremely fast. But if there’s not enough money, it can cause a recession, which means the economy is shrinking.

3. Limitations:

   • One problem is that there can be delays in how quickly these policies work, making it hard to fix issues right away.

Solutions:

• Having clear goals and looking closely at data can help make policies more effective.
• Working together with fiscal policy can lead to better and more stable results.