- Definition: Fiscal policy is how government adjusts spending and tax rates.
- It monitors and influences a nation’s economy.
- It is a sister strategy to monetary policy.
- Objectives:
- Economic Growth (stabilization of business cycles).
- Maintain high level of employment.
- Control inflation.
- Equitable distribution of wealth.
- Welfare (subsidies, income support, health, education).
- Types:
- Expansionary Fiscal Policy: Increases spending, reduces tax levels to boost demand.
- Contractionary Fiscal Policy: Reduces spending, increases tax levels to reduce demand.