Fiscal Policy – What is Fiscal Policy?

What is Fiscal Policy?

Definition of Fiscal Policy: This policy means the measures that the governments take for stabilizing the economy, mainly by adjusting the tax policy, expenditures of the government and several other initiatives taken by the government. All these are designed for optimizing the economic performance. When an economy experiences slow growth or is recovering, there are chances that the taxes may be cut by the government, offering the taxpayers with extra money to spend and therefore raise the consumption level. A rise in the spending on public projects may also offer incentive by pumping more money into the economy, which in turn created new jobs and expanded the economy. On the other hand, a fall in government expenditure or a rise in taxes causes an opposite effect. Monetary policy is generally utilized in tandem with the fiscal policy. John Maynard recommended that the motivation by the government spending was needed to offset the expansion cycle and reduction in the economy. Before this time, the balanced budgets were regarded as the main objective. Monetary policy is successful in inspiring an economy.