In macroeconomics, a government's monetary policy is its plan to control which of the following?

• A. The money supply and short-term interest rates to influence inflation, employment, and output
• B. Regulations and antitrust enforcement to increase market competition
• C. Tariffs and import quotas to alter the trade balance
• D. Government spending and taxation to influence aggregate demand

Answer: (A)

Verified step by step guidance

1. Understand that monetary policy refers specifically to the actions taken by a central bank or government to manage the economy by controlling the money supply and interest rates.
2. Recognize that monetary policy primarily targets short-term interest rates and the amount of money circulating in the economy to influence key macroeconomic variables such as inflation, employment, and output.
3. Differentiate monetary policy from fiscal policy, which involves government spending and taxation decisions aimed at influencing aggregate demand.
4. Note that regulations and antitrust enforcement, as well as tariffs and import quotas, are tools related to market competition and trade policy, not monetary policy.
5. Conclude that the correct description of monetary policy is the control of the money supply and short-term interest rates to influence inflation, employment, and output.