What does fiscal policy refer to?

Fiscal policy refers to the use of government spending and taxation to influence a country's economy. When a government implements fiscal policy, it makes decisions about how much money to spend on public services and infrastructure, as well as how much to tax individuals and businesses. This approach aims to manage economic activity, control inflation, and promote economic growth.

For example, if a government increases spending, it may stimulate economic activity by creating jobs and boosting demand for goods and services. Conversely, adjusting tax rates can either encourage more consumer spending or help control inflation. By managing these two tools—spending and taxation—governments can play a vital role in stabilizing the economy during various phases of the economic cycle.