A goal of monetary policy and fiscal policy is to:

• A. reduce the money supply to zero
• B. increase the rate of inflation indefinitely
• C. promote economic stability and growth
• D. eliminate all government spending

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the primary objectives of monetary and fiscal policy. Both policies aim to influence the overall economy, particularly focusing on economic stability and growth rather than extreme or unrealistic targets.
2. Step 2: Recognize that reducing the money supply to zero is neither practical nor desirable, as the money supply is essential for transactions and economic activity.
3. Step 3: Understand that increasing the rate of inflation indefinitely is harmful because high inflation erodes purchasing power and creates uncertainty in the economy.
4. Step 4: Note that eliminating all government spending is not a goal of fiscal policy, as government spending is a key tool to manage economic cycles and provide public goods.
5. Step 5: Conclude that the correct goal of both monetary and fiscal policy is to promote economic stability and growth by managing inflation, unemployment, and overall economic output.