What is fiscal policy?

Fiscal policy refers to the strategies implemented by a government concerning taxation and public spending with the aim of influencing a nation’s economic performance. This involves adjusting tax rates and spending levels in order to encourage economic growth, control inflation, or stabilize employment levels. For instance, during a recession, a government may decrease taxes or increase spending to stimulate demand and boost economic activity.

In contrast, the other options cover different aspects of economic policy. The second option pertains to monetary policy, which deals with the control of money supply and interest rates typically managed by a country's central bank. The third option also describes a component of monetary policy, focusing specifically on interest rate decisions made by central banks to influence economic conditions. The fourth option relates to trade policies and regulations but does not directly connect to fiscal measures regarding government budgeting and taxation. Thus, the first choice accurately captures the essence of fiscal policy and its objectives in managing economic variables through government intervention.