Which term describes a government payment to encourage or protect economic activity?

A subsidy is a financial aid or support provided by the government to encourage or protect specific economic activities. This support can lower the cost of production for businesses, making products or services more affordable for consumers, or it can promote certain sectors of the economy deemed beneficial, such as renewable energy or agriculture. By providing subsidies, the government aims to influence market behavior, stimulate economic growth, and support industries that may struggle without financial assistance.

In contrast, a grant is typically a sum of money given for a specific purpose and often does not require repayment. Tax credits reduce the amount of tax owed by individuals or businesses but do not constitute a direct payment from the government. Incentives can refer to various motivating factors, including but not limited to subsidies, and may not specifically denote a government payment. Thus, the term subsidy is the most precise in describing a government payment intended to encourage or protect economic activities.