How is "monetary policy" defined?

Monetary policy is defined as the management of money supply and interest rates, and this is the most accurate characterization of the term. It involves the actions taken by a nation's central bank, such as the Federal Reserve in the United States, to influence the availability and cost of money in the economy. By adjusting interest rates and changing the amount of money circulating in the economy, monetary policy aims to achieve macroeconomic objectives like controlling inflation, managing employment levels, and fostering economic growth.

The central bank may increase or decrease the money supply through various tools, such as open market operations, the discount rate, and reserve requirements. For instance, lowering interest rates can encourage borrowing and investment, while raising them might help cool off an overheating economy.

This definition is distinct from the other choices. A government spending strategy refers to fiscal policy, which focuses on government expenditure and tax policies. Taxation policies set by the government are also elements of fiscal policy rather than monetary policy. Public investment in national projects, while important for economic development, does not encompass the broader aspects of money supply and monetary authority that define monetary policy.