Which fiscal policy tool is primarily used to influence economic activity?
Practice Questions
Q1
Which fiscal policy tool is primarily used to influence economic activity?
Taxation
Interest rates
Reserve requirements
Open market operations
Questions & Step-by-Step Solutions
Which fiscal policy tool is primarily used to influence economic activity?
Step 1: Understand what fiscal policy is. Fiscal policy refers to the government's use of spending and taxation to influence the economy.
Step 2: Identify the tools of fiscal policy. The main tools are government spending and taxation.
Step 3: Focus on taxation. Taxation involves changing tax rates or tax revenues to affect how much money people and businesses have to spend.
Step 4: Recognize the impact of taxation on the economy. By lowering taxes, people have more money to spend, which can boost economic activity. Conversely, raising taxes can slow down spending.
Step 5: Conclude that taxation is a primary tool used by governments to influence economic activity.
