Which of the following scenarios best exemplifies fiscal policy?

Fiscal policy refers to the use of government spending and taxation to influence the economy. A key aspect of fiscal policy is how government decisions regarding public expenditure, tax policies, and overall budgetary planning can help stabilize economic performance during various phases of the economic cycle.

In the scenario where the government increases public sector employment during a downturn, this action is a classic example of fiscal policy. By hiring more public sector employees, the government injects money into the economy, leading to an increase in aggregate demand. This is crucial during a downturn when private sector demand may be falling and unemployment rates may be rising. The aim is to stimulate economic activity, generate more jobs, and ultimately support recovery.

On the other hand, while lowering interest rates is associated with monetary policy, it is not within the purview of fiscal policy. Similarly, reducing regulations on banks pertains more to regulatory policy rather than fiscal policy. Raising property taxes for schools, while a governmental action, reflects a fiscal policy change, but it may not directly stimulate economic growth in the same way that increasing employment does during a recession.

Thus, the correct answer reflects a clear application of fiscal policy aimed at stimulating the economy during challenging economic times through direct government intervention in job creation.