Which of the following best describes fiscal policy?

Fiscal policy refers to the use of government spending and taxation to influence the economy. It encompasses the decisions made by the government regarding how much to spend and how to raise revenue through taxes. By adjusting these spending and taxation levels, the government can steer economic activity in a desired direction, such as stimulating growth during a recession or cooling down inflation.

For example, increased government spending can boost demand, leading to higher output and employment, while higher taxes can help to restrain economic activity and mitigate inflation. This contrasts with other aspects of economic policy, such as monetary policy, which is primarily focused on controlling the money supply and interest rates, typically implemented by the central bank.