What does monetary policy aim to control?

Monetary policy primarily aims to manage the money supply and interest rates in an economy. The central banks, such as the Bank of Canada or the Federal Reserve in the United States, implement monetary policy to influence economic conditions, stabilize prices, and achieve sustainable economic growth.

By controlling the money supply, these institutions can affect inflation rates and the overall demand in the economy. For example, increasing the money supply can lead to lower interest rates, encouraging borrowing and investment, while decreasing the money supply can have the opposite effect, potentially leading to higher interest rates and reduced spending.

Interest rates play a crucial role in monetary policy as they determine the cost of borrowing money. Lower interest rates generally stimulate economic activity by making loans more affordable for consumers and businesses. Conversely, higher interest rates help to control inflation by discouraging excessive spending and borrowing, thus maintaining price stability.

In contrast to the other options, government spending is typically managed through fiscal policy, which involves decisions made by the government about taxation and public spending. Unemployment rates can be influenced by a range of factors, including fiscal policies and overall economic conditions, but they are not the primary focus of monetary policy. Finally, while monetary policy can indirectly affect inflation, it does not directly control taxation, which is