Monetary policy is defined as using which tools?

• A. Using interest rates and exchange rates to control the economy
• B. Setting fiscal budgets
• C. Enacting labour laws
• D. Granting tax exemptions

Answer: (A)

Monetary policy works by shaping the price and availability of money in the economy. The main levers are the policy interest rate, which changes borrowing costs for households and firms and therefore spending and investment, influencing inflation and growth. In some economies, authorities also adjust the exchange rate through interventions, which can affect import prices and competitiveness, feeding into inflation and overall demand. Because these tools directly target money conditions and price levels rather than government spending or regulations, they are the tools used in monetary policy. Setting fiscal budgets, enacting labour laws, and granting tax exemptions are fiscal or regulatory measures rather than monetary policy.