What is the primary purpose of monetary policy?

The primary purpose of monetary policy is to control inflation and ensure price stability. Central banks, such as the Federal Reserve in the United States, utilize monetary policy to manage the supply of money and interest rates in the economy. By doing so, they can influence economic activities, control inflation rates, and promote stable prices, which are essential for maintaining consumer and business confidence.

When inflation is high, central banks may increase interest rates to make borrowing more expensive, thereby reducing spending and slowing down price increases. Conversely, to stimulate economic growth during periods of low inflation or recession, they might lower interest rates, encouraging borrowing and investment. Thus, controlling inflation and maintaining price stability are critical to achieving broader economic goals, such as full employment and sustainable growth.

The other options do not reflect the primary aim of monetary policy: regulating government spending is more related to fiscal policy, affecting taxation levels is also a fiscal concern, and directly influencing real estate transactions is not a primary focus of monetary policy, although there can be indirect effects through interest rate changes.