Which policy describes the control of the money supply?

• A. It targets government spending
• B. It targets tax rates
• C. It controls the money supply
• D. It regulates stock markets

Answer: (C)

Monetary policy is about managing the money supply and the cost of credit to influence the overall economy. The central bank uses tools like open market operations (buying or selling government securities), reserve requirements for banks, and the policy rate to inject or drain liquidity. When the money supply is expanded, borrowing becomes easier and rates tend to fall, fueling economic activity; when it's tightened, borrowing costs rise and spending slows, helping curb inflation. This focus on money supply distinguishes monetary policy from fiscal policy, which deals with government spending and taxes, and from market regulation, which oversees financial markets. So the option that describes controlling the money supply aligns with monetary policy.