Which of the following policies refers to the use of government spending and tax policies to influence economic conditions?

Correct option is A

Fiscal policy involves the use of government spending and taxation to influence economic conditions, including demand, employment, and inflation. Governments implement fiscal policies to stimulate economic growth during a recession or to cool down an overheated economy by increasing or decreasing public expenditure and taxes.

Information Booster:

1. Components of Fiscal Policy: Revenue (taxes) and expenditure (spending).
2. Types: Expansionary (reducing taxes/increasing spending) and contractionary (increasing taxes/reducing spending).
3. Objective: To achieve macroeconomic stability and growth.
4. Role of Budget: Fiscal policy is outlined in the annual budget of the government.
5. Instruments: Direct taxes, indirect taxes, subsidies, and public sector investments.
6. Control: Managed by the Finance Ministry in India.

Additional Knowledge:

• Option (b) Monetary Policy: Refers to the regulation of money supply and interest rates by the central bank (e.g., RBI).
• Option (c) Mercantile Policy: Focuses on trade and commerce, prominent during colonial times.
• Option (d) Banking Policy: Refers to banking regulations and is controlled by the central bank.

Key Points:

• Fiscal deficit measures the gap between government revenue and expenditure.
• Fiscal policy complements monetary policy to maintain economic stability.
• Major fiscal tools in India include GST, subsidies, and infrastructure spending.