Which policy uses fiscal measures to stabilise the economy?

• A. Fiscal policy
• B. Productivity policy
• C. Monetary policy
• D. Contractionary monetary policy

Answer: (A)

Using fiscal measures to stabilise the economy means the government uses its budget to influence overall demand through changes in spending and taxes. This is fiscal policy, where expansionary steps like higher government spending or lower taxes boost demand during a slump, and contractionary steps like lower spending or higher taxes cool demand when inflation is rising. Productivity policy focuses on boosts to long-run output and potential, not short-term demand management. Monetary policy relies on the central bank to change the money supply and interest rates to steer demand; contractionary monetary policy tightens money supply to slow the economy, which is a monetary, not a fiscal, tool. So the approach that uses fiscal measures to stabilise the economy is fiscal policy.