Monetary Policy is Money Supply and Interest Rate Policy Monetary policy is money supply and interest rate policy . Unlike fiscal policy, which uses the flow variables of taxing and spending to influence macroeconomic activity, monetary policy uses the stock variable, money supply, and its price, the interest rate, to influence macroeconomic activity. The interest rate is the annualized percentage of principal that is paid for the use of money. Money is a generalized claim on all other assets both now and in the future.
Money supply is that asset or group of assets that acts as money.