Which policy involves government changes to spending or taxation to influence the economy?

Fiscal policy involves government changes to spending or taxation to influence the economy. This approach is used by governments to stimulate economic growth, reduce unemployment, or manage inflation through adjustments in their budgetary expenditures and tax policies. For example, increasing government spending can lead to higher demand for goods and services, which can help to boost economic activity during a recession. Conversely, reducing spending or increasing taxes can help cool down an overheated economy by lowering demand.

In contrast, monetary policy primarily focuses on controlling the money supply and interest rates, typically managed by a country's central bank. Trade policy deals with the regulations and agreements that govern international trade, affecting how goods and services flow across borders. Regulatory policy involves laws and guidelines that govern the behavior of individuals and companies within the economy, ensuring compliance and promoting fair market practices but does not directly alter government spending or tax rates. Therefore, fiscal policy is distinctly characterized by its use of government financial decisions to influence overall economic conditions.