what is fiscal policy in economics

Fiscal policy in economics refers to the use of government spending and taxation to influence the economy, especially macroeconomic conditions such as aggregate demand, employment, inflation, and economic growth. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty. It is often contrasted with monetary policy, which is enacted by central bankers. Fiscal policy can be expansionary, involving lower tax rates or increased spending to stimulate demand, or contractionary, involving higher tax rates or reduced spending to combat inflation. The primary economic impact of any change in the government budget is felt by particular groups, and fiscal policy can be an important tool for managing the economy because of its ability to affect the gross domestic product