What is the main objective of monetary policy?

The main objective of monetary policy is to control inflation and manage employment levels. Central banks, such as the Federal Reserve in the United States or the European Central Bank in Europe, use monetary policy as a tool to regulate the economy by influencing the money supply and interest rates.

By adjusting interest rates, central banks aim to either stimulate the economy by encouraging borrowing and investments when there is low inflation and high unemployment or combat inflation by tightening the money supply when inflation is rising. This balancing act is crucial because stable prices and full employment are fundamental to promoting healthy economic growth. Thus, managing inflation and employment is central to ensuring overall economic stability, making this the correct objective of monetary policy.

Other options may touch upon aspects relevant to banking or the economy but do not capture the primary function of monetary policy. For instance, empowering banks to issue more loans can be a result of a monetary policy that lowers interest rates but is not the overarching goal. Similarly, promoting investment in stocks or increasing savings rates among consumers can be influenced indirectly by monetary policy, but these are not its main objectives.