What is the primary goal of fiscal policy?

The primary goal of fiscal policy is to influence economic activity through government spending and taxation. This approach allows the government to adjust its levels of spending and tax rates to either stimulate the economy during periods of downturn or to cool it down when the economy is overheating.

When the government increases spending or cuts taxes, it can boost demand and stimulate economic growth, which is especially important during recessions. Conversely, by decreasing spending or increasing taxes, the government can dampen inflation and cool off an economy that may be growing too quickly. Thus, through these adjustments, fiscal policy plays a crucial role in managing overall economic stability.

The other options, while related to different aspects of economic policy, do not capture the essence of fiscal policy's primary goal. Regulating the banking system pertains more to monetary policy administered through central banks, controlling inflation is a subset of broader economic management, and enhancing international trade relations falls under trade policy rather than fiscal measures.