Canadian Securities Course (CSC) Level 1 Practice Exam

What informs government decisions regarding its spending and taxation powers?

1. GDP statistics

2. Fiscal policy

3. Monetary policy

4. Capital market trends

The correct answer is: Fiscal policy

Fiscal policy is the correct answer because it directly relates to government spending and taxation decisions. Fiscal policy encompasses the strategies and actions taken by the government to influence the economy through adjustments in spending levels and tax rates. This policy is essential in managing economic growth, inflation, and unemployment. When a government decides to increase or decrease public spending, or modify tax structures, it is utilizing fiscal policy to address economic conditions. This process helps to ensure that the economy is functioning effectively, stimulating growth during downturns or restraining it during periods of inflation. The other options provide relevant economic data or measures but do not specifically govern government decisions on spending and taxation. GDP statistics offer insights into economic performance but do not dictate fiscal actions. Monetary policy, implemented by central banks, focuses on controlling the money supply and interest rates to influence economic activity, which is distinct from the direct exertion of taxation and spending authority. Capital market trends provide information about the financial markets but do not directly impact government fiscal decisions.