Political Economy Economic Systems Questions
Fiscal policy refers to the government's use of taxation and spending to influence the overall state of the economy. It involves the decisions and actions taken by the government to manage its revenue and expenditure in order to achieve specific economic objectives. Fiscal policy can be expansionary or contractionary, depending on whether the government aims to stimulate economic growth or control inflation. Expansionary fiscal policy involves increasing government spending and/or reducing taxes to boost aggregate demand and stimulate economic activity. On the other hand, contractionary fiscal policy involves decreasing government spending and/or increasing taxes to reduce aggregate demand and control inflation. Fiscal policy plays a crucial role in influencing economic growth, employment levels, price stability, and income distribution within a country.