Fiscal policy uses taxation and government spending

Steps:

• Define fiscal policy as government adjustments to taxes and spending to influence the economy.
• Review options: identify which directly involves tax changes or spending.
• Eliminate non-fiscal options like exchange rates, union powers, or interest rates.
• Select the tax-related option as the fiscal measure.

Why C is correct:

• Reducing corporation tax lowers business taxes, a direct fiscal policy tool per macroeconomic definitions to stimulate investment.

Why the others are wrong:

• A: Increasing exchange rate is monetary or trade policy, not fiscal.
• B: Reducing trade union power is labor or structural reform, unrelated to taxes/spending.
• D: Setting low interest rates is monetary policy controlled by the central bank.

Final answer: C