Fiscal Policy
Government spending, taxation, budget deficits, and the national debt — and how fiscal decisions ripple through the economy.
Fiscal policy refers to government decisions about spending and taxation, distinct from the monetary policy set by central banks. Expansionary fiscal policy — higher spending or lower taxes — aims to stimulate a weak economy but can widen budget deficits and add to the national debt if not offset elsewhere; contractionary fiscal policy does the reverse to cool an overheating economy or rein in deficits. Because fiscal and monetary policy can work in tandem or in opposite directions — for example, government stimulus spending while a central bank simultaneously raises rates to fight inflation — understanding both together gives a fuller picture of the forces shaping growth and prices.
