Define fiscal policy and the instruments of fiscal policy?

 

Question: Define fiscal policy and the instruments of fiscal policy?

Fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. Fiscal policy can be used to achieve certain goals, such as full employment, economic growth, and price stability . Fiscal policy can be either expansionary or contractionary. Expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth. Contractionary fiscal policy raises rates or cuts spending to prevent or reduce inflation. The instruments of fiscal policy are the government's budget, which determines the level and allocation of taxes and government expenditures, and the public debt, which is the amount of money that the government owes to its creditors.

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