Fiscal Policy

Choose the Correct Answer

Correct Answer : Option a

Explanation
By bringing out changes in the structure of taxation, borrowing, etc., and by changing the size and pattern of public expenditure, the government can bring about desired change in the economy. Thus, (i) public revenue, (ii) public expenditure and (iii) public debt form important instruments of fiscal policy.

Option 1 is correct : Public Revenue refers to the income the government collects, primarily through taxes, but also including non-tax revenues like fees, fines, and profits from state-owned enterprises.

Option 2 is not correct : Interest rates are not instruments of fiscal policy; they are tools of monetary policy, which is managed by a central bank, while fiscal policy involves government spending and taxation.

Option 3 is not correct : Open Market Operations involve the central bank buying or selling government securities (like bonds) in the open market to inject or withdraw liquidity from the banking system.

Option 4 is correct : Government Spending encompasses the government's spending on various areas like infrastructure, education, healthcare, and defense.

Option 5 is correct : Public Debt represents the government's outstanding liabilities, incurred through borrowing to finance deficits or investments.