In macroeconomics, fiscal policy is primarily conducted by which institution(s), and it mainly involves which tools?

• A. International organizations; changes in exchange rate pegs and tariff schedules
• B. Private banks; changes in reserve requirements and consumer lending standards
• C. The central bank; changes in the money supply and the policy interest rate
• D. The federal, state, and local governments; changes in government spending and taxation

Answer: (D)

Verified step by step guidance

1. Identify the key institutions involved in fiscal policy. Fiscal policy is typically managed by government entities rather than financial institutions or international organizations.
2. Understand the main tools of fiscal policy. Fiscal policy primarily involves adjusting government spending and taxation to influence the economy.
3. Distinguish fiscal policy from monetary policy. Monetary policy, conducted by the central bank, involves tools like changing the money supply and interest rates, which is different from fiscal policy.
4. Recognize that international organizations and private banks do not conduct fiscal policy. Their roles are more related to monetary policy or international economic coordination.
5. Conclude that fiscal policy is conducted by federal, state, and local governments using changes in government spending and taxation as the main tools.