Fiscal Policy
| Fiscal policy is the use of government spending and taxation to influence the economy. Fiscal policy can be used to stabilize the economy, promote economic growth, or distribute resources. The government uses fiscal policy to influence the level of economic activity. By changing the level of government spending or taxation, the government can affect the level of aggregate demand in the economy. Aggregate demand is the total demand for all goods and services in an economy. Fiscal policy can be used to stabilize the economy. For example, if the economy is in a recession, the government can use fiscal policy to increase aggregate demand and promote economic growth. Conversely, if the economy is growing too rapidly, the government can use fiscal policy to slow down economic growth. Fiscal policy can also be used to distribute resources. For example, the government can use fiscal policy to reduce income inequality by increasing taxes on the wealthy and using the revenue to fund social welfare programs. |
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