Which of the following is an example of fiscal policy?
Answer and explanation
Correct answer: C. The government increasing the rate of income tax to reduce a budget deficit
- Step 1: Fiscal policy concerns government taxation and spending.
- Step 2: Raising income tax is a tax decision.
- Step 3: Interest rates and the money supply are monetary policy.
Answer
The government increasing the rate of income tax to reduce a budget deficit.
Why not the others: This is monetary policy, which is controlled by the central bank. This is also monetary policy (quantitative easing). This is employment legislation and not an instrument for managing demand.
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