Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What is the primary focus of fiscal policy?

1. Adjusting monetary supply to influence the economy

2. Regulating banks' reserve requirements

3. Adjusting spending levels and tax rates

4. Controlling inflation through interest rates

The correct answer is: Adjusting spending levels and tax rates

The primary focus of fiscal policy is to adjust spending levels and tax rates. Fiscal policy is the means by which a government adjusts its spending and tax policies to influence the economy. By increasing spending or decreasing taxes, a government can stimulate economic activity, which is particularly important during periods of economic downturn. Conversely, reducing spending or increasing taxes can help cool down an overheating economy, thereby helping to maintain stable growth and control inflation. This approach directly affects overall demand in the economy, impacting factors like consumer spending, business investment, and ultimately, economic growth. In contrast, options that involve adjusting monetary supply, regulating banks' reserve requirements, or controlling inflation through interest rates pertain to monetary policy, which is managed by central banks and focuses on the supply of money in the economy rather than direct government spending and taxation.