Question

Which action is an example of domestic policy? A governor decides against running for a second term. The president negotiates a peace treaty between two warring nations. Congress passes a law that grants tax credits for installing solar panels. The Supreme Court strikes down a law that bans importing inefficient automobiles.

Answer 1

We can exclude all the options that are related to international policy, that is: 
1)The Supreme Court strikes down a law that bans importing inefficient automobiles.

and 

2) the president negotiates a peace treaty between two
warring nations.

Also a governor's decision to run, or not, for a second term is not a "policy". 

The correct answer is:
Congress passes a law that grants tax credits for installing solar panels

Answer 2

The correct answer is Congress passes a law that grants tax credits for installing solar panels.

A domestic policy refers to laws/ideas that apply to one's own country or nation. In this case, any option choice that discusses other nations of foreign policies is incorrect. This rules out answer choices B and D.

A governor choosing not to run for another term of office is not considered a policy. Rather, a policy is a concept that an individual develops as a means to help improve their society. Deciding to not run for office does not fit this definition.

Therefor C is the only correct answer choice.