Question

The Federal Government's way of manipulating taxes and spending to stimulate the economy and rein in inflation is called?

1) Monetary policy
2) Fiscal policy
3) Supply-side policy
4) Demand-side policy

Answer 1

The Federal Government's method of using tax rates and government spending to affect the economy is called fiscal policy, which is used to stimulate output or control inflation.

Step-by-step explanation:

The Federal Government's way of manipulating taxes and spending to stimulate the economy and rein in inflation is called fiscal policy. Fiscal policy involves adjusting government spending and tax rates to influence the economy. During a recession, employing an expansionary fiscal policy such as lowering taxes or increasing government spending can stimulate output and decrease unemployment. Conversely, to combat inflation, a contractionary fiscal policy may be used, which includes increasing taxes or decreasing government spending.

Monetary policy is another important economic tool used by the Federal Reserve to manage economic fluctuations. Unlike fiscal policy, which is determined by Congress and the President, monetary policy involves altering the money supply and interest rates to regulate economic activity.