Question

Which action is an example of the government pursuing a fiscal policy? The central bank increases the money supply. The Federal Reserve decreases the money supply. Congress increases income tax rates. The Federal Reserve engages in open-market operations.

Answer 1

Fiscal can be defined as: "of or relating to taxation, public revenues, or public debt." (merriam-webster) therefore, the answer is C: **Congress increasing income tax rates.**

Answer 2

The third alternative is correct (C).

Fiscal Policy can be practiced in two ways: by increasing / decreasing public spending or increasing / decreasing taxes.

Increasing public spending and lowering taxes are expansionary fiscal policies, that is, aimed at stimulating the economy. On the contrary, reducing government spending and raising taxes are contractionary fiscal policies that seek to cool the economy.

In this way, the increase of the Income Tax is a fiscal policy, contractionist, that aims to discourage the economy.

The other alternatives represent Monetary Policy instruments.