Which policy does the Federal Reserve use to regulate the money supply in the nation?

The correct answer is monetary policy because it refers specifically to the actions taken by the Federal Reserve to control the supply of money and interest rates in the economy. Through tools such as open market operations, the discount rate, and reserve requirements, the Federal Reserve influences overall economic activity, inflation, and employment levels.

Monetary policy aims to ensure price stability and maximum sustainable employment, which are key components of a healthy economy. By adjusting the money supply, the Federal Reserve can respond to changing economic conditions, either stimulating growth during downturns or cooling off inflation when the economy is overheating. This distinct role is what sets monetary policy apart from other types of policy, clarifying the Federal Reserve's primary function in the regulation of the nation’s money supply.

In contrast, fiscal policy relates to government spending and taxation, trade policy deals with international trade practices and agreements, and investment policy pertains to strategies for managing investments. Each of these has different objectives and operates within distinct frameworks, making them unsuitable for directly regulating the money supply in the same way that monetary policy does.