Distinguishing Fiscal from Monetary Policy

Steps:

• Recall fiscal policy involves government spending, taxation, and borrowing to influence the economy.
• Identify monetary policy as central bank actions on money supply, interest rates, and banking regulations.
• Evaluate each option: A and B relate to currency and credit (monetary); C is advisory (neither); D involves government debt (fiscal).
• Confirm D aligns with fiscal tools like issuing bonds to manage deficits.

Why D is correct:

• Fiscal policy, per Keynesian economics, includes managing government debt levels through borrowing to fund expenditures and stabilize the economy.

Why the others are wrong:

• A: Exchange rate fixing is monetary policy, controlled by central banks to manage currency value.
• B: Credit regulations are monetary policy, used by central banks to control lending and inflation.
• C: Guidance to industry is regulatory or administrative policy, not tied to fiscal spending or taxes.

Final answer: D