Correct Answer: Government policies that affect the overall level of economic activity

Solution : The correct answer is (a) Government policies that affect the overall level of economic activity

Fiscal policy refers to the use of government spending and taxation to influence the overall level of economic activity in an economy. It involves decisions made by the government regarding its expenditure on public goods and services, as well as its revenue generation through taxes.

Through fiscal policy, the government aims to achieve macroeconomic objectives such as promoting economic growth, reducing unemployment, controlling inflation, and maintaining economic stability. It involves decisions on the allocation of government resources, the level of government spending, and the use of taxation to influence the economy.

Fiscal policy is distinct from monetary policy, which involves actions taken by the central bank to manage the money supply, interest rates, and banking system to influence economic activity.