How does fiscal policy influence economic growth?

Fiscal policy refers to the use of government spending and taxation to influence the economy. The choice that highlights the way fiscal policy can promote economic growth is the option that involves increasing government spending and lowering taxes. This approach can stimulate economic activity in several ways.

When the government increases spending, it injects money directly into the economy. This spending can take the form of infrastructure projects, education, healthcare, or other public services that create jobs and enhance productivity. As businesses and households receive contracts or benefits from government expenditures, their incomes rise, leading to increased consumption and investment, which further stimulates growth.

Lowering taxes, particularly for individuals and businesses, leaves more money in the hands of consumers and entrepreneurs. This can encourage consumer spending, as individuals have more disposable income, and increase investment by businesses, as they retain more profits to reinvest in their operations. Lower taxes can also enhance incentives for work and investment, which can lead to overall economic expansion.

In contrast, imposing high taxes on businesses can constrain their ability to invest and grow, reducing overall economic activity. Similarly, reducing government spending can stabilize an economy in inflationary times but may also slow down growth, especially if it leads to a decrease in aggregate demand. Establishing monopolies does not promote economic