Fiscal Policy

Fiscal policy is how the government uses its money to influence the economy. It involves two main tools: spending and taxation.

There are three main types of fiscal policy:

1. Expansionary Fiscal Policy: when the government increases spending or cuts taxes to help the economy grow, especially during a recession;
2. Contractionary Fiscal Policy: when the government reduces spending or raises taxes to slow down the economy, usually to control inflation;
3. Neutral Fiscal Policy: when the government's spending is roughly equal to its revenue.

Fiscal policy goes hand in hand with monetary policy to achieve various economic goals. Both policies aim to foster a stable and growing economy but use different methods and are controlled by different entities.

Monetary policy involves central banks, including the Federal Reserve, working towards maintaining economic stability by controlling inflation, managing employment levels, and ensuring a stable currency, while fiscal policy involves government spending and taxation decisions to influence the economy.