What is the primary aim of fiscal policy?

What is the primary aim of fiscal policy?

• A. To control inflation
• B. To influence economic activity through spending and taxation
• C. To regulate the money supply
• D. To improve the balance of trade

Answer: (B)

The primary aim of fiscal policy is to influence economic activity through government spending and taxation. Fiscal policy involves the use of government budgetary tools to manage and guide the economy. When the government increases its spending, it can stimulate economic growth, especially during periods of recession when private sector demand may be insufficient. Conversely, by adjusting tax rates, the government can either encourage consumer spending and investment or, in times of inflation, slow down the economy by increasing taxes. This approach differs from the regulation of the money supply, which falls under monetary policy, typically managed by central banks. The balance of trade is also primarily influenced by various factors outside of fiscal policy, including exchange rates and global demand for goods and services. While controlling inflation is an important goal for both fiscal and monetary authorities, it is not the primary function of fiscal policy itself; rather, it is a side effect of broader fiscal measures aimed at managing overall economic activity.

The primary aim of fiscal policy is to influence economic activity through government spending and taxation. Fiscal policy involves the use of government budgetary tools to manage and guide the economy. When the government increases its spending, it can stimulate economic growth, especially during periods of recession when private sector demand may be insufficient. Conversely, by adjusting tax rates, the government can either encourage consumer spending and investment or, in times of inflation, slow down the economy by increasing taxes.

This approach differs from the regulation of the money supply, which falls under monetary policy, typically managed by central banks. The balance of trade is also primarily influenced by various factors outside of fiscal policy, including exchange rates and global demand for goods and services. While controlling inflation is an important goal for both fiscal and monetary authorities, it is not the primary function of fiscal policy itself; rather, it is a side effect of broader fiscal measures aimed at managing overall economic activity.