Which of the following would be considered a fiscal policy action?

• A. Increasing government spending on infrastructure projects
• B. Lowering the central bank's interest rate
• C. Buying government securities in the open market
• D. Changing the reserve requirement for commercial banks

Answer: (A)

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 fiscal policy: Look for actions that involve government spending or taxation changes.
3. Analyze each option: 'Increasing government spending on infrastructure projects' involves direct government expenditure, which is a fiscal policy action.
4. Recognize that 'Lowering the central bank's interest rate', 'Buying government securities in the open market', and 'Changing the reserve requirement for commercial banks' are tools of monetary policy, not fiscal policy.
5. Conclude that the correct fiscal policy action among the options is the one involving government spending, specifically 'Increasing government spending on infrastructure projects'.