What is the primary objective of monetary policy?

The primary objective of monetary policy is to control the money supply and interest rates. Central banks, such as the Federal Reserve in the United States, implement monetary policy to influence the economy's overall liquidity and stability. By adjusting the money supply and interest rates, policymakers aim to achieve various economic goals, including controlling inflation, managing employment levels, and fostering economic growth.

For instance, if inflation is too high, a central bank might increase interest rates, making borrowing more expensive. This, in turn, can help to cool off an overheating economy. Conversely, if the economy is in a recession, the central bank may lower interest rates to encourage borrowing and spending, thereby stimulating economic activity.

The options related to government spending or fiscal policies pertain more to the government's budgetary decisions and taxation rather than the financial system's control mechanisms that are at the heart of monetary policy. Similarly, while foreign trade is important, it is not a direct focus of monetary policy, which is more concerned with domestic money supply and interest rates. Thus, the correct answer reflects the core function of monetary authorities in managing economic stability through comprehensive control over the financial system.