What does fiscal policy primarily affect?

Fiscal policy primarily influences taxation and government spending. This approach involves government decisions regarding tax rates and levels of public spending, which can directly impact the economy's overall demand. By adjusting taxation, the government can influence consumers’ disposable income, ultimately affecting consumption and savings. Similarly, changes in government spending can stimulate economic activity by increasing demand for goods and services, leading to economic growth.

The other options, while pertinent to economic policy, do not fall within the scope of fiscal policy. Interest rates are primarily controlled by monetary policy, which is the domain of central banks. The money supply is also a focus of monetary policy and relates to how much currency and liquid assets are available in the economy. Labor force participation speaks to employment levels and demographics rather than the financial mechanisms of fiscal policy. This delineation confirms why taxation and government spending are the foundational elements of fiscal policy.