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Difficulty: EasyMonetary Policy, Fiscal Policy, and Economic Tools

A registered representative is explaining to a client how different governmental entities influence economic conditions. Which of the following actions is an example of fiscal policy established by Congress?

  1. A
    Purchasing U.S. Treasury securities in the open market
  2. Increasing federal personal income tax ratesAnswer
  3. C
    Lowering the Interest on Reserve Balances (IORB) rate
  4. D
    Adjusting the discount rate charged to depository institutions

Answer

Increasing federal personal income tax rates is a fiscal policy action set by Congress.
Increasing federal personal income tax rates is a fiscal policy measure enacted by Congress to adjust government revenue and influence economic activity.

Step-by-Step Solution

1
Distinguish between fiscal policy and monetary policy authorities.
Fiscal policy involves government taxation and spending controlled by Congress and the President. Monetary policy involves money supply and interest rate management controlled by the Federal Reserve.
Identifying the governing body determines whether an economic action is fiscal or monetary.
2
Evaluate the choices to identify Congressional fiscal action.
Changing federal income tax rates requires Congressional legislation, making it a primary fiscal policy tool.
Tax legislation directly impacts consumer disposable income and federal revenue through legislative decision-making.

Key Concept

Fiscal policy refers to taxation and government spending policies created and implemented by Congress to influence macroeconomic activity.
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Topics

Monetary Policy, Fiscal Policy, and Economic Tools

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