Which type of policy is characterized by adjustments in interest rates to influence economic conditions?

Monetary policy is characterized by adjustments in interest rates to influence economic conditions. Central banks, such as the Federal Reserve in the United States or the European Central Bank in the Eurozone, utilize monetary policy as a tool to manage economic activity. By changing interest rates, they can impact borrowing costs, consumer spending, and investment. For instance, lowering interest rates typically encourages borrowing and spending, which can stimulate economic growth. Conversely, increasing interest rates can help control inflation by discouraging excessive borrowing and spending.

This type of policy is distinct from fiscal policy, which involves government spending and taxation decisions, and from regulatory policy, which focuses on the rules governing economic activities. Supply-side policies, on the other hand, aim to increase economic growth by enhancing productivity and efficiency through measures such as tax cuts or deregulation, rather than through interest rate adjustments. Therefore, monetary policy specifically encompasses the use of interest rates to steer economic conditions, making it the correct choice in this context.