Fiscal Policy

Fiscal policy is the measure the government used to adjust its levels of spending and taxation to directly influence the economy, including demand for goods and services, employment, inflation, and economic growth. Fiscal and monetary policies are frequently used together to achieve various economic goals.

There are three basic financial policies: neutral, expansionary, and contractionary.

Neutral – Government spending is equal to its revenue, which is usually undertaken when an economy is in equilibrium.

Expansionary – Government spending is higher than its revenue, which is usually undertaken during recession.

Contractionary – Government spending is lower than its revenue, which is usually undertaken during high inflation.