The key purpose of monetary policy is to influence what economic factor?

The key purpose of monetary policy is to influence interest rates. Central banks, such as the Federal Reserve in the United States, utilize monetary policy to manage and adjust interest rates to achieve various macroeconomic objectives, including controlling inflation, promoting employment, and stabilizing the economy.

By altering the benchmark interest rates, central banks can impact the cost of borrowing and the return on savings, which in turn influences consumer spending, business investment, and overall economic activity. When interest rates are lowered, borrowing becomes cheaper, encouraging spending and investment. Conversely, raising interest rates can help cool down an overheating economy by making borrowing more costly.

While government expenditure, aggregate supply, and fiscal deficits are indeed important economic factors, they are more directly influenced by fiscal policy rather than monetary policy. Fiscal policy involves government spending and taxation decisions, which do not fall within the purview of monetary policy's primary function of adjusting interest rates.