What does fiscal policy refer to?

Fiscal policy refers to the strategies that a government employs regarding its spending and taxation levels to influence the economic conditions of a country. It involves the decisions made by the government on how much money to allocate for public services and projects, as well as how to generate revenue through taxes. By adjusting these factors, fiscal policy can promote economic growth, control inflation, and manage unemployment.

For instance, during a recession, a government might increase public spending or cut taxes to stimulate demand and encourage economic activity. Conversely, if the economy is overheating, it may reduce spending or increase taxes to temper the economic expansion. This direct manipulation of government budgets and tax rates makes fiscal policy a crucial tool for managing the overall economy.

The other options reflect concepts that are different from fiscal policy. Regulations to manage private businesses fall under government intervention and regulatory policy rather than fiscal policy itself. Monetary policies focus on controlling the money supply and interest rates, managed by a country's central bank, which is distinctly separate from fiscal measures. International trade agreements relate to cross-border economic relations, distinct from domestic fiscal measures.