Which pairs of operations BEST fit with fiscal policy?

A) government spending and taxation

B) taxation and open market operations

C) discount rate and government spending

D) open market operations and discount rate

Answer: A government spending and taxation

Option (A) is correct.

Explanation:

There are two policies that a nation's government and central bank uses to achieve its economic objectives. The two policies are as follows:

(i) Monetary policy: A central bank uses this monetary policy to control the money supply in an economy.

(ii) Fiscal policy: Fiscal policy is used to maintain the budget deficit of a nation. There are two parts of fiscal policy:

Expansionary fiscal policy: This includes increase in government expenditure and reduction in taxes. Contractionary fiscal policy: It includes reduction in the government expenditure and charge higher taxes. Government usually uses this policy to cover the deficit of a nation.