Fiscal Policy

Fiscal policy is the use of government spending and taxation to influence the economy. It is one of two main macroeconomic policies, the other being monetary policy. Fiscal policy can be used to achieve a variety of goals, such as stimulating economic growth, reducing unemployment, or controlling inflation.

Fiscal policy works by changing the amount of money in the economy. When the government spends money, it puts more money into the economy. This can lead to higher economic growth and lower unemployment. However, it can also lead to higher inflation.

Taxation works in the opposite way. When the government taxes people, it takes money out of the economy. This can lead to lower economic growth and higher unemployment. However, it can also lead to lower inflation.

The government uses fiscal policy to achieve its macroeconomic goals by changing the budget deficit or surplus. A budget deficit occurs when the government spends more money than it collects in taxes. A budget surplus occurs when the government collects more money in taxes than it spends.

A budget deficit increases the amount of money in the economy, which can lead to higher economic growth and lower unemployment. However, it can also lead to higher inflation.

A budget surplus reduces the amount of money in the economy, which can lead to lower economic growth and higher unemployment. However, it can also lead to lower inflation.

The government's fiscal policy decisions are made by the president and Congress. The president proposes a budget each year, and Congress must approve it before it can go into effect.

Fiscal policy is a powerful tool that can be used to influence the economy. However, it is important to use fiscal policy carefully, as it can have unintended consequences.