Monetary Policy Controls Money Supply

Steps:

• Define monetary policy as actions by a central bank to influence the economy through money supply and interest rates.
• Identify options: A and B relate to government fiscal actions, C to regulations, D to central bank tools.
• Recall that increasing money supply (e.g., via open market operations) is a classic monetary tool to stimulate growth.
• Eliminate non-monetary options to confirm D as the direct example.

Why D is correct:

• Monetary policy, per economic definition, directly involves central banks adjusting the money supply to affect inflation and output, as in the quantity theory of money (MV = PQ).

Why the others are wrong:

• A: This is fiscal policy, where government increases spending to boost demand.
• B: This is fiscal policy, as indirect taxes like VAT are set by government to influence revenue and behavior.
• C: This is regulatory policy, aimed at business oversight, not money or interest rates.

Final answer: D