Concept:Monetary policy is a macro-economic tool used by the central bank to regulate the money supply and interest rates in an economy.
Explanation:Interest rates are a primary instrument of monetary policy.
When inflation rises, the central bank can increase interest rates to reduce borrowing and spending.
This restriction lowers the total money supply in the economy.
Conversely, lowering interest rates makes credit cheaper, encouraging borrowing and spending.
This action increases the money supply and stimulates economic activity.
Therefore, the deliberate use of interest rates to control liquidity is a key feature of monetary policy, not fiscal policy.
Fiscal policy instead depends on government spending and taxation decisions.
Using interest rates in this way helps maintain price stability and sustainable economic growth.
Answer:B. Monetary policy