Which of the following pairs of operations best fit with fiscal policy?

• A. Exchange rate controls and capital flow management
• B. Government spending and taxation
• C. Open market operations and reserve requirements
• D. Interest rate adjustments and currency interventions

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of fiscal policy. Fiscal policy involves government decisions on taxation and government spending to influence the economy.
2. Step 2: Recognize that fiscal policy tools primarily include changes in government spending and taxation levels to manage economic activity.
3. Step 3: Identify that exchange rate controls, capital flow management, open market operations, reserve requirements, interest rate adjustments, and currency interventions are tools related to monetary policy or financial regulation, not fiscal policy.
4. Step 4: Match the options given with the correct policy type. Government spending and taxation clearly align with fiscal policy.
5. Step 5: Conclude that the pair 'Government spending and taxation' best fits with fiscal policy, as these are the direct instruments used by the government to influence aggregate demand and economic growth.