Definition
Fiscal policy uses government spending and taxation to influence aggregate demand, economic growth, and employment. Expansionary fiscal policy (more spending, tax cuts) stimulates growth but increases deficits. Contractionary policy (less spending, tax increases) slows growth but reduces deficits. Fiscal and monetary policy often work in coordination but can sometimes conflict.
lightbulb Example
The 2020 CARES Act ($2.2 trillion in spending and tax relief) was expansionary fiscal policy to counter COVID-19 recession. Direct stimulus payments, enhanced unemployment benefits, and PPP loans supported household income and business survival.
verified_user Key Points
- Uses government spending and taxation
- Expansionary: more spending, tax cuts
- Contractionary: less spending, tax increases
- Can coordinate with or conflict with monetary policy