Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Fiscal policy mainly deals with which aspects of government finance?

  1. Public services

  2. Taxation, public borrowing, and public spending

  3. Land use and zoning

  4. Social security regulation

The correct answer is: Taxation, public borrowing, and public spending

Fiscal policy is primarily concerned with the government's strategies regarding taxation, public borrowing, and public spending. This approach plays a crucial role in managing the economy. Taxation refers to the way a government collects revenue to fund its expenditures. Different tax rates and policies can influence economic behavior, either incentivizing spending and investment or promoting saving depending on the economic objectives at hand. Public borrowing involves the government taking on debt through the issuance of bonds or other instruments to finance expenditure that exceeds current revenues. This borrowing can support various public initiatives, especially during economic downturns when stimulus spending may be necessary to foster growth. Public spending represents the government’s outflow of financial resources on goods and services, which includes infrastructure projects, education, health care, and welfare programs. These expenditures are essential for maintaining and improving the nation's economic environment and can stimulate economic activity directly or indirectly. The other choices, while relevant to certain aspects of government operations, do not fall under the umbrella of fiscal policy. Public services are a result of fiscal policies but do not encompass the breadth of activities involved. Land use and zoning pertain to urban planning and regulatory measures rather than financial matters. Social security regulation, while related to public spending, is specifically focused on welfare and does not capture the comprehensive