01 Why is the government budget considered a policy instrument in macroeconomics?
Answer and explanation
Correct answer: C. Because taxes, expenditure, and borrowing can affect aggregate demand.
Explanation: The government budget records planned public receipts and expenditure and is an instrument of fiscal policy. Changes in taxes, government purchases, transfers, and borrowing influence disposable income, consumption, investment, aggregate demand, output, employment, and prices. Thus the budget can be used for stabilisation and broader economic objectives.