How can the central bank affect economic activity using monetary policy

A particular economy can go through many downturns and upturns in what is called the business cycle. A central bank may wish to dampen these fluctuations by using one of two tools. The first one is changing the monetary base. BY printing or recalling money in the economy they can change the supply of money which would affect economic activity, however this method has rarely been practised in recent decades. The other tool of a central bank is the central bank loan interest rate. This rate determines on what terms commercial banks can borrow from the central bank. The commercial banks then charge consumers and firms interest rates that are determined by this base rate. This channel then affects spending in the economy. If the base rate is lowered this allows households and firms to borrow more and so consume and invest more, thus increasing economic activity if the country happened to be hit by a recession and vice versa.