Question : What is the purpose of a fiscal policy?
Option 1: To regulate the money supply
Option 2: To regulate the government's spending and taxation
Option 3: To regulate interest rates
Option 4: To regulate international trade
Correct Answer: To regulate the government's spending and taxation
Solution : The correct answer is (b). To regulate the government's spending and taxation.
The purpose of fiscal policy is to manage the government's spending and taxation in order to influence the overall economy. Fiscal policy is implemented by the government, typically through the executive and legislative branches, and it aims to promote economic stability, growth, and development.
Through fiscal policy, the government adjusts its levels of spending and taxation to influence aggregate demand, employment, inflation, and economic activity. The government can increase spending and/or decrease taxes to stimulate economic growth during periods of low economic activity or recession. Conversely, it can decrease spending and/or increase taxes to cool down an overheating economy and manage inflationary pressures.
Fiscal policy is an important tool for governments to achieve macroeconomic objectives and address economic challenges. It is often used in conjunction with monetary policy (which focuses on regulating the money supply and interest rates) to create a balanced and sustainable economic environment.
