Which of the following roles does a fiscal policy play in economic stability?

A fiscal policy significantly influences overall economic growth through the mechanisms of taxation and government spending. When a government adjusts its tax rates or decides to increase or decrease its spending, it directly affects the economic activity within a country.

For instance, lowering taxes can boost consumer spending as individuals have more disposable income, leading to increased demand for goods and services. Similarly, government spending on projects such as infrastructure can create jobs and stimulate economic activity. These actions can stabilize the economy during downturns and promote growth during periods of economic stagnation.

The role of fiscal policy is essential in guiding the economy towards stability by balancing inflation and unemployment levels. Through targeted fiscal measures, the government aims to foster a conducive environment for sustainable economic growth, which is why this answer is the most accurate representation of the role fiscal policy plays in economic stability.