Final answer:
Fiscal policy involves government spending and taxation decisions that aim to regulate the economy's growth and prevent instability in the business cycle. The correct answer is option: c. government spending and taxation decisions.
Step-by-step explanation:
Fiscal policy refers to the decisions regarding government spending and taxation. The main objective of fiscal policy is to manage the business cycle to ensure the economy grows at a stable rate without experiencing sharp accelerations or contractions.
The government employs fiscal policy through changes in its taxing or spending policies to influence aggregate demand and supply, thereby impacting the overall economic activity. When the government spends more than it collects in taxes, it results in a budget deficit, while collecting more than it spends results in a budget surplus. A balanced budget occurs when government spending and taxes are equal.