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Fiscal policy relates to the Government decision in respect of

I. Taxation
II. Government spending
III. Government borrowing
IV. Public Debt

  • A.III and IV are correct.
  • B.II, III and IV are correct.
  • C.I and II are correct.
  • D.All the above are correct.

Answer: D

Fiscal policy relates to all of the government decisions listed: taxation, government spending, government borrowing and public debt. It is the use of the budget, that is of receipts, expenditure and the way a deficit is financed, to influence the level of output, employment and prices. Since each of I, II, III and IV is a part of fiscal policy, the keyed answer is that all the above are correct, option D. Options A, B and C leave out at least one of the items.

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