Fiscal Policy - The Government's Financial Arsenal


Fiscal policy refers to the use of government spending, taxation, and borrowing to influence economic activity. By increasing government spending on public infrastructure projects and social programs, fiscal policy can stimulate economic growth and create jobs. Similarly, tax cuts can boost consumer spending and business investments.

However, fiscal policy must be managed prudently to avoid budget deficits and excessive borrowing. A balanced budget ensures financial sustainability and reduces the burden on future generations.

The effectiveness of fiscal policy also depends on the economic context. In times of economic downturn, expansionary fiscal measures can be beneficial. Still, during periods of strong economic growth, fiscal restraint may be necessary to prevent overheating and inflation.