Fiscal policy 

Fiscal policy is a change in government spending or taxing designed to influence economic activity. These changes are designed to control the level of aggregate demand in the economy. Governments usually bring about changes in taxation, volume of spending, and size of the budget deficit or surplus to affect public expenditure.

The following are the objectives of fiscal policy:

1. To maintain and achieve full employment.
2. To stabilise the price level.
3. To stabilise the growth rate of the economy.
4. To maintain equilibrium in the balance of payments.
5. To promote the economic development of underdeveloped countries.

There are two types of fiscal policy –

• The first, and most widely used, is expansionary.
• It stimulates economic growth.
• The government either spends more, cuts taxes, or does both if it can.
• The idea is to put more money into consumers’ hands, so they spend more.
• That jump starts demand, which keeps businesses running, and hopefully adds jobs.
• The money goes into the pockets of consumers, who go right out and buy the things businesses produce.
• Of course, there is a debate about which works better. Expansionary fiscal policy is usually impossible for state and local government.
  

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• The second type, contractionary fiscal policy, is rarely used.
• That’s because its goal is to slow economic growth.
• That’s because the long-term impact of inflation can damage the standard of living as much as a recession.
• The tools of contractionary fiscal policy are used in reverse.
• Taxes are increased, and spending is cut.

Tools of Fiscal policy-

• The first tool is taxation. That includes income, capital gains from investments, property, sales, or just about anything else.
• The second tool is government spending. That includes subsidies, transfer payments including welfare programs, public works projects, and government salaries. Whoever receives the funds has more money to spend. That increases demand and economic growth.

https://www.helloscholar.in/difference-fiscal-policy-monetary-policy/

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