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A government spending and taxation policy to achieve macroeconomic goals is known as fiscal policy. The correct option is fiscal policy.
Fiscal policy refers to the government's use of spending and taxation to influence the economy and achieve macroeconomic goals. It is a tool used by governments to stabilize the economy, promote economic growth, control inflation, and address unemployment.
Through fiscal policy, the government adjusts its spending levels and tax rates to influence aggregate demand and overall economic activity. When the government increases its spending or decreases taxes, it injects more money into the economy, stimulating consumer spending and business investment. This expansionary fiscal policy is typically used to combat economic downturns, such as recessions, by boosting demand and promoting economic growth.
On the other hand, during periods of high inflation or an overheating economy, the government may implement contractionary fiscal policy. This involves reducing government spending and increasing taxes to reduce aggregate demand and cool down the economy, thus addressing inflationary pressures.
Fiscal policy is often used in combination with monetary policy, which involves the control of interest rates and money supply by the central bank. Together, fiscal and monetary policies form the two main tools of macroeconomic management.
Supply-side policies, on the other hand, focus on improving the productivity and efficiency of the economy by addressing factors that affect the supply side of the economy, such as regulations, labor market reforms, and investment in infrastructure. While supply-side policies can influence economic growth, they are not specifically targeted at achieving macroeconomic goals through spending and taxation.
Fiscal restraint refers to a policy approach that aims to limit government spending and reduce budget deficits or debt levels. It is a specific approach within fiscal policy that prioritizes fiscal discipline and sustainability. However, fiscal policy encompasses a broader range of actions and can be expansionary or contractionary, depending on the economic conditions and objectives.
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