Fiscal policy refers to the use of government spending and taxation to influence the economy. It is one of the two main tools of macroeconomic policy, the other being monetary policy.
In general, fiscal policy involves the government's decisions regarding how much money it will spend on various programs and services, as well as how much it will collect in taxes from individuals and businesses. The government can use fiscal policy to stimulate economic growth and job creation during periods of recession, or to slow down an overheating economy during periods of high inflation.
For example, during a recession, the government may use fiscal policy to increase government spending on infrastructure projects, such as building roads and bridges, to create jobs and stimulate demand. The government may also reduce taxes to increase disposable income and encourage consumer spending.
Alternatively, during periods of high inflation, the government may use fiscal policy to reduce government spending and increase taxes to reduce demand and curb inflationary pressures.
Overall, fiscal policy is an important tool for governments to manage the economy and achieve their policy objectives, such as maintaining full employment, controlling inflation, and promoting economic growth