Question

Fiscal policy refers to the a. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. b. altering of the interest rate to change aggregate demand. c. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. d. fact that equal increases in government spending and taxation will be contractionary.

Answer 1

The correct answer is option a.

Step-by-step explanation:

Fiscal policy can be defined as a tool to make changes in the economic variables with the motive to stabilize economy. In fiscal policy the government makes changes in the its expenditure or tax rates.

Fiscal policy can be expansionary or contractionary. In case of expansionary policy, the government reduces tax rates or increases spending or both.

In case of contractionary policy, the taxes are increased or spending is reduced or both.