Which of the following best describes a monetary policy tool?

• A. Changing the interest rate to influence the money supply
• B. Increasing government spending on infrastructure
• C. Setting minimum wage laws
• D. Imposing tariffs on imported goods

Answer: (A)

Verified step by step guidance

1. Understand that monetary policy tools are actions taken by a central bank to influence the money supply and interest rates in the economy.
2. Identify that changing the interest rate is a classic monetary policy tool because it directly affects borrowing costs and the money supply.
3. Recognize that increasing government spending on infrastructure is a fiscal policy tool, not monetary policy, as it involves government budget decisions.
4. Note that setting minimum wage laws is a labor market regulation and does not directly influence the money supply or interest rates.
5. Understand that imposing tariffs on imported goods is a trade policy tool, affecting international trade rather than the money supply.