Fiscal policy involves the use of government spending and taxation to influence the economy.
It’s a tool used by governments to achieve economic objectives like controlling inflation, stimulating economic growth, and reducing unemployment.
For instance, during a recession, a government might increase spending on infrastructure projects to create jobs and boost demand.
Alternatively, it might cut taxes to increase disposable income for households and businesses, encouraging them to spend and invest.
Conversely, to cool down an overheating economy, the government might reduce spending or increase taxes.