The policy that uses interest rate adjustments to influence the economy is known as which type of economic policy?

• A. Monetary
• B. Fiscal
• C. Trade
• D. Regulatory

Answer: (A)

Monetary policy is the use of interest rate changes and other monetary tools by the central bank to influence economic activity. Lowering interest rates makes borrowing cheaper, encouraging households to spend and firms to invest, which can boost growth and help raise the price level if needed. Conversely, raising rates makes borrowing more expensive, cooling demand to keep inflation in check. This contrasts with fiscal policy, which relies on government spending and taxes; trade policy, which deals with international trade barriers; and regulatory policy, which sets rules and standards. So the described approach is monetary policy.