Fiscal policy measures imply a change in

Step 1: Analyze the question The question asks what fiscal policy involves. The key word is "fiscal," which relates to government finances.

Step 2: Explain the concept Fiscal policy is the use of government revenue (mainly taxation) and government expenditure (spending) to influence the economy. Its goals include controlling aggregate demand, reducing unemployment, controlling inflation, and promoting economic growth.

• Expansionary fiscal policy: the government increases spending and/or cuts taxes to boost demand (used during recession).
• Contractionary fiscal policy: the government reduces spending and/or raises taxes to cool demand (used during inflation).

Step 3: Evaluate each option

• A. only taxation to control aggregate demand: Wrong. Taxation is only one tool. The word "only" makes it incorrect.
• B. bank rate to influence lending: Wrong. Bank rate (the Monetary Policy Rate in Nigeria) is a monetary policy tool controlled by the Central Bank of Nigeria (CBN), not fiscal policy.
• C. only government expenditure to regulate an economy: Wrong. Spending is only one part, and again "only" makes it incorrect.
• D. government revenue and expenditure to regulate an economy: Correct. It covers both parts of fiscal policy: revenue (taxes) and expenditure (spending).

Step 4: Answer

Exam tip: Remember the split:

• Fiscal policy = Federal Government (taxes and spending, through the Ministry of Finance)
• Monetary policy = CBN (interest rates, money supply, bank rate)

Also, be careful with options containing the word "only." In economics, they are often wrong because policies usually involve more than one tool.