Fiscal Policy

Fiscal policy is the use of government spending and tax policies to influence macroeconomic conditions. It is typically used to adjust economic demand and stimulate growth. There are two types of fiscal policy, expansionary and contractionary.

Expansionary fiscal policy is employed to increase consumer demand and economic growth, typically through increased government spending and reduced taxes. This strategy is often used during economic downturns to reduce unemployment and stimulate business activity.

Conversely, contractionary fiscal policy is used to slow economic growth and curb inflation. This approach involves decreasing government spending or increasing taxes to reduce consumer demand and prevent the economy from overheating. This type of policy is generally applied when an economy is growing rapidly and there are concerns about inflation rising too quickly.