HISET Social Studies Practice

What is fiscal policy primarily concerned with?

1. Controlling inflation rates

2. Managing the economy through taxing and spending

3. Regulating foreign trade

4. Setting interest rates

The correct answer is: Managing the economy through taxing and spending

Fiscal policy is primarily concerned with managing the economy through taxing and spending. This involves the government adjusting its levels of spending and tax rates to influence economic activity. By increasing or decreasing taxes and government spending, fiscal policy aims to promote economic growth, reduce unemployment, and control inflation. When the government increases spending, it injects more money into the economy, while decreasing taxes leaves individuals and businesses with more disposable income, both of which can stimulate economic activity. Controlling inflation rates, regulating foreign trade, and setting interest rates are all aspects of economic policy, but they fall under different categories. Inflation control can be influenced by fiscal policy, but it is primarily the responsibility of monetary policy, which is concerned with the money supply and interest rates. Regulating foreign trade deals with trade policy and international economic relations, and setting interest rates is a function of central banks and monetary policy, not fiscal policy.