Fiscal Policy Involves Government Revenue and Spending Tools

Steps:

• Recall fiscal policy definition: government actions on taxation and spending to influence economy.
• Identify measures: includes taxes, subsidies, and public expenditures.
• Evaluate choices: match against fiscal tools versus monetary or other policies.
• Select direct tax as it directly affects government revenue.

Why A is correct:

• Direct tax, like income tax, is a core fiscal policy tool per economic definitions, as it adjusts government revenue to control aggregate demand.

Why the others are wrong:

• B: Exchange rates are managed via monetary policy or international trade, not fiscal.
• C: Interest rates are set by central banks as monetary policy instruments.
• D: Regulation falls under administrative or regulatory policy, not fiscal budgeting.

Final answer: A