In macroeconomics, fiscal policy refers to which of the following?

• A. The central bank’s management of the money supply and interest rates to influence inflation and output
• B. The adjustment of exchange rates and capital controls to stabilize the balance of payments
• C. The use of government spending and taxation to influence aggregate demand and overall economic activity
• D. The use of price controls and wage guidelines to directly set the prices of goods and labor

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of fiscal policy in macroeconomics. Fiscal policy involves government decisions related to spending and taxation.
2. Step 2: Recognize that fiscal policy aims to influence aggregate demand, which affects overall economic activity such as output and employment.
3. Step 3: Differentiate fiscal policy from monetary policy, which is managed by the central bank and involves controlling the money supply and interest rates.
4. Step 4: Note that exchange rate adjustments and capital controls relate to balance of payments management, not fiscal policy.
5. Step 5: Identify that price controls and wage guidelines are direct interventions in prices and wages, which are not considered fiscal policy tools.