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Difficulty: MediumMonetary Policy, Fiscal Policy, and Economic Tools

An investor reading a macroeconomic report notes that the government has enacted legislation to increase spending on national infrastructure projects and reduce individual income tax rates during a period of sluggish growth. Which of the following statements correctly identifies the type of policy described and the authority responsible for its execution?

  1. It represents fiscal policy administered by the U.S. Congress.Answer
  2. B
    It represents monetary policy administered by the Federal Reserve Board.
  3. C
    It represents a lagging economic indicator administered by the Department of the Treasury.
  4. D
    It represents yield curve control administered by the Federal Open Market Committee.

Answer

The statement identifying the actions as fiscal policy administered by the U.S. Congress is correct.
Fiscal policy consists of government decisions regarding taxation and public spending, which are authorized and legislated by the U.S. Congress to influence economic activity.

Step-by-Step Solution

1
Analyze the policy tools described in the scenario.
Changing tax rates and modifying government spending on public projects are identified as fiscal tools.
Fiscal policy specifically concerns federal revenue collection (taxes) and expenditure (spending).
2
Identify the authority responsible for establishing federal tax legislation and government appropriations.
The U.S. Congress (the legislative branch) holds the constitutional power to tax and spend.
The Federal Reserve regulates money supply and interest rates (monetary policy), whereas Congress controls federal budgetary and fiscal policy.

Key Concept

Fiscal Policy vs. Monetary Policy Authority
Estimated Time:1m 0s
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Topics

Monetary Policy, Fiscal Policy, and Economic Tools

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