Which of the following best describes monetary policy?

Monetary policy refers to the actions undertaken by a nation's central bank to control the money supply and interest rates in order to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity. This manipulation of interest rates and money supply is a critical tool for influencing economic activity.

When a central bank adjusts interest rates, it can either encourage borrowing and spending (lower interest rates) or restrain it (higher interest rates). Changes in the money supply can affect inflation and employment levels by impacting the availability of cash in the economy. Thus, this strategic approach aligns closely with the central aims of monetary policy, making the third option the most accurate description of the concept.

In contrast, the other options focus on different economic frameworks: managing government spending and taxation relates to fiscal policy; regulating financial institutions and markets pertains to financial regulation, which ensures stability and protects consumers; and the framework for governmental economic regulation involves broader governmental interventions in the economy, rather than the specific actions of central banks.