A recession has hit. As a result, the government has decided to reduce defense spending so that it can evenly spread out this money to its citizens in a one time payment. Is this an example of fiscal policy or monetary policy? Explain.
A. This is an example of fiscal policy because the government is giving its citizens money without changing taxes in any way
B.This is an example of monetary policy because the government is adjusting its spending and not printing new money.
C.This is an example of fiscal policy because the government is adjusting its spending and not printing new money
D.This is an example of monetary policy because the government is giving its citizens money without changing taxes in any way.
A. This is an example of fiscal policy because the government is giving its citizens money without changing taxes in any way. Fiscal policy involves the government's decisions on spending and taxation to influence the economy, and in this scenario, the government is directly adjusting its spending by reducing defense spending and distributing the saved money to citizens. Monetary policy, on the other hand, involves decisions made by central banks regarding interest rates, money supply, and credit availability.
C. This is an example of fiscal policy because the government is adjusting its spending and not printing new money.
Fiscal policy refers to the use of government spending and taxation to influence the economy. In this scenario, the government is reducing defense spending to reallocate the money to its citizens as a one-time payment. By adjusting its spending, the government is directly using its fiscal policy to stimulate the economy and support its citizens during the recession. It is not related to monetary policy which involves the control of money supply and interest rates by the central bank.
The correct answer is C. This is an example of fiscal policy because the government is adjusting its spending and not printing new money.
To understand why this is fiscal policy, let's break down the definitions of fiscal policy and monetary policy:
Fiscal policy refers to the government's use of taxation and spending to influence the economy. It involves the government adjusting its levels of spending and taxation to stabilize the economy, promote growth, and manage inflation.
Monetary policy, on the other hand, involves the central bank's management of the money supply and interest rates to influence the economy. It includes actions such as changing interest rates, buying or selling government securities, and controlling the money supply.
In the given scenario, the government is reducing defense spending and distributing that money to its citizens in a one-time payment. This action falls under fiscal policy because the government is adjusting its spending levels to provide economic stimulus and support its citizens during the recession. It is not directly related to monetary policy, which focuses on managing the money supply and interest rates.
Therefore, option C is the correct choice: This is an example of fiscal policy because the government is adjusting its spending and not printing new money.