Which policy is aimed at maintaining price stability within an economy?

Maintaining price stability is primarily the responsibility of monetary policy, which involves the management of the money supply and interest rates by a central bank. The central bank adjusts these levers to influence economic activity, controlling inflation or deflation to keep prices stable. When inflation is high, the central bank might increase interest rates to reduce spending and borrowing. Conversely, if there’s deflation or a recession, lowering interest rates can encourage spending and investment.

Monetary policy is crucial because it directly affects the availability of money in the economy and influences the behavior of consumers and businesses. By doing so effectively, it aims to create an environment where prices remain relatively stable over time. This stability is important for economic growth, as it provides certainty for consumers and investors, helping them make informed financial decisions.

The other policies mentioned, such as expansionary and contractionary, refer to specific types of monetary policy actions rather than a framework aimed specifically at maintaining price stability. Fiscally neutral policy is not inherently aimed at maintaining price stability either; it refers more to the government's budget not causing undue changes in the economy. Thus, monetary policy is recognized as the key mechanism for achieving and maintaining price stability in an economy.