What is fiscal policy?

Fiscal policy refers to the use of government spending and tax policies to influence a country's economic conditions, such as economic growth, inflation, and unemployment levels. When governments adjust their spending levels and tax rates, they can directly impact the overall economic activity within the economy. For example, increasing government spending can stimulate growth during a recession, while raising taxes may be used to cool down an overheating economy.

Understanding fiscal policy is essential because it encompasses decisions about how government revenues (from taxes) are collected and how those funds are allocated to various sectors like health, education, and infrastructure, which can promote economic stability and growth. In contrast to other economic strategies, fiscal policy is specifically focused on government actions that can directly influence the economy through the government's budgetary decisions.

The other options highlight different aspects of economic policy, such as monetary policy in the context of interest rates or stock market regulations, but they do not accurately capture the essence of fiscal policy itself.