Future Business Leaders of America (FBLA) Securities and Investments Practice Test

Which policy is responsible for managing the money supply in an economy?

1. Fiscal policy

2. Tax policy

3. Monetary policy

4. Trade policy

The correct answer is: Monetary policy

Monetary policy is the correct choice because it specifically involves managing the money supply and interest rates in an economy. This is typically carried out by a country's central bank, which uses various tools like open market operations, reserve requirements, and the discount rate to influence liquidity and overall economic activity. By controlling the money supply, monetary policy aims to maintain price stability, manage inflation, and foster conditions for economic growth. In contrast, fiscal policy refers to government spending and taxation decisions aimed at influencing the economy. Tax policy focuses specifically on the government's approach to taxation and its effects on individuals and businesses. Trade policy involves regulations and agreements that govern international trade practices, but it does not directly manage the money supply. Thus, while all these policies influence the economy in various ways, it is monetary policy that is dedicated to the management of the money supply specifically.