Economics
Fiscal Policy
Where monetary policy works through interest rates and the money supply, fiscal policy works through the government's budget. Increasing spending or cutting taxes tends to stimulate demand, while cutting spending or raising taxes cools it.
Fiscal decisions can have direct, targeted effects, such as infrastructure programs that channel money into specific sectors. They also shape the supply of government bonds, which influences yields and the broader flow of capital.
Because fiscal and monetary policy can either reinforce or work against each other, investors watch both. Large deficits, for instance, can lift growth in the short run while raising longer-term questions about debt and inflation.
Example
A large government stimulus package is fiscal policy in action, injecting spending directly into the economy.
Fiscal Policy — FAQ
What is Fiscal Policy?
Fiscal policy is the use of government spending and taxation to influence the economy, distinct from the monetary policy set by central banks.
Can you give an example of Fiscal Policy?
A large government stimulus package is fiscal policy in action, injecting spending directly into the economy.
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