Definition: Government decisions about spending and taxation to influence the economy.
Fiscal policy is one of two main macroeconomic policy tools (the other is monetary policy). Expansionary fiscal policy (more spending or tax cuts) stimulates demand and fights recessions. Contractionary policy (less spending or tax hikes) cools overheating economies and fights inflation. Fiscal policy affects aggregate demand directly through government spending.
COVID stimulus checks and PPP loans were expansionary fiscal policy to prevent depression. After WWII, fiscal austerity reduced deficits. Tax cuts in 2017 aimed to boost investment and growth.
Fiscal policy is a major AP Macro unit. You
Category: Macroeconomics