Which option best describes fiscal policy?

Fiscal policy refers specifically to the government's use of taxation and spending to influence the economy. It encompasses the adjustments made to government spending levels and tax rates to monitor and influence a nation's economy. By altering these elements, the government can achieve various objectives, such as stimulating economic growth during a recession or cooling down an economy that is overheating.

This option accurately captures the essence of fiscal policy, as it directly involves government decisions regarding how much to tax citizens and how to allocate funds through spending programs. These decisions have significant implications for overall economic activity, employment levels, and inflation.

The other options discuss concepts related to economic policy but focus on different mechanisms. Central banks, for instance, operate under monetary policy, which is distinct from fiscal policy as it typically involves managing interest rates and money supply. The mention of monetary measures to control inflation refers to actions undertaken by central banks rather than fiscal measures. Lastly, government regulations affecting market practices pertain to regulatory policy rather than fiscal strategies aimed at managing economic performance through taxation and spending.