Tools of monetary policy refer to the methods that central banks use to influence the supply of money and credit in an economy. The main tools of monetary policy are open market operations, reserve requirements, and bank rates.
Open market operations involve the buying and selling of government securities by the central bank to influence the amount of money in circulation. When the central bank buys government securities, it injects money into the economy, and when it sells them, it takes money out of the economy.
Reserve requirements refer to the amount of money that banks are required to hold in reserve, either with the central bank or in their own vaults, to ensure that they have enough funds to meet their obligations to depositors.
Bank rates refer to the interest rate that the central bank charges on loans to commercial banks, which can influence the interest rates that banks charge to their customers.
Tax and public expenditure policies are not tools of monetary policy. Tax policies refer to the way that governments collect revenue from individuals and businesses, while public expenditure refers to the way that governments spend money on public goods and services. These policies are typically set by government authorities, not central banks, and are used to achieve broader economic goals, such as promoting economic growth or redistributing wealth.