Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Adjusting interest rates to control inflation
B
Government spending and taxation decisions to influence the economy
C
Regulating the money supply through central banks
D
Establishing price controls on essential goods
Understanding the Answer
Let's break down why this is correct
Answer
Fiscal policy is the way the government uses its spending and taxes to influence the economy. When the government increases spending or cuts taxes, it can help boost economic activity by putting more money into people's hands. For example, if the government builds a new highway, it creates jobs and helps companies that supply materials, which can lead to more spending in the community. On the other hand, if the government raises taxes or cuts spending, it can slow down the economy because people have less money to spend. Overall, fiscal policy is an important tool for managing economic growth and stability.
Detailed Explanation
Fiscal policy is about how the government decides to spend money and collect taxes. Other options are incorrect because Some might think fiscal policy is about changing interest rates; This option confuses fiscal policy with central banking.
Key Concepts
macroeconomics
Topic
Long Response Questions in AP Economics
Difficulty
easy level question
Cognitive Level
understand
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