Fiscal policy refers to government decisions about spending and taxation to influence economic conditions. Expansionary fiscal policy stimulates growth; contractionary fiscal policy cools an overheating economy.
Defining Fiscal Policy Fiscal policy refers to the use of government spending and taxation to influence aggregate demand, economic activity, and macroeconomic objectives such as growth, employment, and price stability. It is one of the two main tools of macroeconomic policy — the other being monetary policy, which is managed by the central bank. Fiscal policy decisions are made by the government and implemented through the annual budget process. Types of Fiscal Policy Expansionary Fiscal Policy