Monetary Policy Tools

Steps:

• Recall that monetary policy regulates the economy through central bank actions on money and credit.
• Identify primary tools: adjusting interest rates to influence borrowing and spending, or changing money supply via open market operations.
• Match tools to options: interest rates and money supply directly align with monetary policy.
• Eliminate unrelated options like fiscal or trade measures.

Why B is correct:

• Monetary policy, as defined by central banks like the Federal Reserve, directly controls interest rates (e.g., federal funds rate) and money supply (e.g., via quantitative easing) to manage inflation and growth.

Why the others are wrong:

• A: Involves fiscal policy, which adjusts government spending and taxes.
• C: Relates to labor policy, affecting wages and employment regulations.
• D: Pertains to trade policy, using barriers to influence imports/exports.

Final answer: B