Which statement best describes fiscal policy?

• A. Monetary policy.
• B. Trade policy.
• C. Industrial policy.
• D. Fiscal policy.

Answer: (D)

The concept tested is how governments use spending and taxes to influence the economy. Fiscal policy refers to the government’s choices about revenue (taxes) and spending, with the aim of affecting overall demand and economic conditions. By changing tax rates or adjusting public spending, a government can stimulate activity during a downturn or cool it when inflation accelerates. It also includes automatic stabilizers, like unemployment benefits, that kick in without new legislation. This differs from monetary policy, which deals with money supply and interest rates controlled by the central bank, and from trade or industrial policies, which target international trade rules or support for specific sectors rather than the overall fiscal stance.