What does fiscal policy primarily govern?

Fiscal policy primarily governs taxation and government spending because it involves the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. Policymakers utilize fiscal policy to manage economic performance, promote economic growth, and stabilize the economy during fluctuations such as recessions or booms.

For instance, during an economic downturn, the government might increase public spending or cut taxes to encourage consumer and business spending, thus stimulating the economy. Conversely, in a booming economy, the government might reduce spending or increase taxes to curb inflation and manage growth rates.

The other options pertain to different areas: regulating interest rates is primarily a function of monetary policy, while the supply of mortgage loans is affected by broader lending practices and market conditions rather than direct government action. Similarly, the amount of currency in circulation is determined by monetary policy through central banking operations, rather than fiscal policy decisions.