What is the main focus of monetary policy?

The main focus of monetary policy is setting interest rates. This involves the management of the money supply and interest rates by a country's central bank, such as the Bank of Canada or the Federal Reserve in the United States. By adjusting interest rates, the central bank can influence economic activity. Lowering interest rates generally encourages borrowing and spending by consumers and businesses, which can boost economic growth. Conversely, raising interest rates can help control inflation by making borrowing more expensive, thus slowing down spending.

Monetary policy is distinct from fiscal policy, which involves government spending and taxation decisions. While fiscal policy influences the economy through government budgets and tax laws, monetary policy is primarily concerned with controlling inflation and stabilizing the currency. This is why options regarding government spending, regulating trade, and creating tax reforms do not align with the primary objective of monetary policy.