Which of the following best describes monetary policy?

Monetary policy primarily focuses on managing the economy’s money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, encouraging economic growth, and stabilizing the currency. The correct response highlights the role of changing interest rates through the cash rate, which is a key tool used by a country's central bank, such as the Reserve Bank of Australia, to influence economic activity.

When the central bank adjusts the cash rate, it affects the cost of borrowing and the return on savings. A lower cash rate typically encourages borrowing and spending by consumers and businesses, which can help stimulate economic growth. Conversely, increasing the cash rate can help curb inflation by making borrowing more expensive, thereby reducing spending.

The other options focus on fiscal policy or trade regulations: adjusting taxes relates to fiscal policy, which impacts government revenue and consumer spending; regulating government expenditure also aligns with fiscal policy by addressing how government funds are allocated; and implementing trade tariffs pertains to international trade policy rather than monetary policy. Hence, the answer about changing interest rates through the cash rate appropriately encapsulates the essence of monetary policy.