Which of the following is an example of fiscal policy?

• A. The government imposes new regulations on businesses.
• B. The central bank buys government bonds in the open market.
• C. The government increases spending on infrastructure projects.
• D. The central bank lowers the interest rate.

Answer: (C)

Verified step by step guidance

1. Understand the definition of fiscal policy: Fiscal policy involves government decisions on taxation and government spending to influence the economy.
2. Identify the options related to government spending or taxation, since these are the key tools of fiscal policy.
3. Recognize that imposing new regulations on businesses is a regulatory action, not fiscal policy.
4. Note that actions by the central bank, such as buying government bonds or lowering interest rates, are examples of monetary policy, not fiscal policy.
5. Conclude that increasing government spending on infrastructure projects is a classic example of fiscal policy because it directly involves government expenditure to stimulate economic activity.