Question

What is the main purpose of fiscal policy?

• A. To regulate the money supply
• B. To achieve economic stability and growth
• C. To control inflation
• D. To promote international trade

Hint:

\textbf{Fiscal Policy:} Use of government spending and taxation to influence the economy.
\textbf{Main Goals:}
Macroeconomic stability (controlling business cycles, inflation, unemployment).
Sustainable economic growth.
Equitable income distribution.
\textbf{Monetary Policy} (by central bank) primarily deals with money supply and interest rates to control inflation and stabilize economy.
"Economic stability and growth" is the most comprehensive primary goal for fiscal policy among the options.

Answer 1

The Correct Option is B

Fiscal policy refers to the use of government revenue collection (primarily taxes) and government spending (expenditure) to influence a country's economy. The main purposes or objectives of fiscal policy typically include:
Achieving economic stability: This involves managing aggregate demand to avoid excessive inflation (overheating economy) or recession (high unemployment, low growth).
Promoting economic growth: Using fiscal tools to encourage investment, production, and long-term sustainable growth.
Ensuring full employment (or low unemployment): Stimulating demand during downturns to create jobs.
Price stability (controlling inflation): While monetary policy is often the primary tool for inflation control, fiscal policy (e.g., reducing government spending or increasing taxes to curb demand) can also play a role. (Option c is a part of stability).
Equitable distribution of income and wealth: Through progressive taxation and social welfare spending.
Resource allocation: Directing resources towards desired sectors or public goods. The overarching goal that encompasses many of these is to achieve macroeconomic stability (stable prices, low unemployment) and sustainable economic growth. Let's evaluate the options:
(a) To regulate the money supply: Regulating the money supply and credit conditions is primarily the role of monetary policy, which is conducted by the central bank (e.g., by adjusting interest rates, reserve requirements, open market operations).
(b) To achieve economic stability and growth: This is a comprehensive statement that captures the main aims of fiscal policy – managing business cycles (stability) and fostering long-term expansion (growth).
(c) To control inflation: Controlling inflation is one aspect of achieving economic stability, and fiscal policy can contribute to it. However, monetary policy often plays a more direct role. "Achieving economic stability" is a broader goal that includes inflation control.
(d) To promote international trade: While fiscal measures like tariffs or export subsidies can influence international trade (these are part of trade policy, often linked to fiscal policy), promoting international trade is not usually considered the *main* or *primary* purpose of general fiscal policy in the same way as macroeconomic management. Option (b) provides the most encompassing and widely accepted primary purpose of fiscal policy. \[ \boxed{\text{To achieve economic stability and growth}} \]