Fiscal Policy
Definition
Fiscal policy refers to the government's use of taxation and spending to influence the economy. It involves decisions on how much money the government should collect in taxes and how much it should spend on public goods and services.
Analogy
Think of fiscal policy as a parent managing their household budget. The parent decides how much money to earn (taxes) and how much to spend on groceries, bills, and other expenses (government spending) to keep the family's finances stable.
Related terms
Expansionary Fiscal Policy: This term refers to when the government increases spending or decreases taxes to stimulate economic growth.
Contractionary Fiscal Policy: This term refers to when the government reduces spending or increases taxes to slow down an overheating economy.
Budget Deficit: This term refers to a situation where the government spends more money than it collects in revenue, resulting in a shortfall that needs financing.
"Fiscal Policy" appears in:
Subjects (2)
Study guides (3)
Additional resources (4)
Practice Questions (11)
- Which of the following is a fiscal policy tool used to combat economic downturns?
- If the government wants to decrease inflation, which fiscal policy action should it take?
- If the government wants to encourage long-term economic growth, which fiscal policy action should it implement?
- If the economy is in a severe recession, what fiscal policy action would be most effective in stimulating economic activity?
- During an economic expansion, what fiscal policy action should the government take?
- When the economy is experiencing a recessionary gap, which fiscal policy action should the government take to close the gap?
- If the government wants to reduce the budget deficit, which fiscal policy action should it implement?
- Which of the following fiscal policy actions would be most effective in reducing a budget surplus?
- Which of the following fiscal policy actions can help reduce income inequality?
- During a period of high government debt, which fiscal policy action should the government prioritize?
- Which type of fiscal policy focuses on the supply side and aims to increase output?
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