Fiscal Policy
Passage
Fiscal policy refers to the use of government spending and tax policies to influence the economy. It is one of the main tools for managing economic performance and stabilizing the economy. The government can either increase spending, reduce taxes, or both, to stimulate economic activity, particularly during recessions. Conversely, to control inflation and prevent the economy from overheating, the government may reduce spending or increase taxes. Fiscal policy is implemented through government budgets and is typically decided by the government or a fiscal authority. Expansionary fiscal policy, used during economic downturns, increases aggregate demand by boosting government spending and reducing taxes. Contractionary fiscal policy, used during periods of high inflation, aims to reduce aggregate demand by cutting government spending and raising taxes. The effectiveness of fiscal policy depends on factors such as the size of the fiscal measures, the state of the economy, and public expectations.
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