fiscal policy theories

Fiscal policy involves government decisions on spending and taxation to influence the economy. Expansionary fiscal policy increases government spending or lowers taxes to boost economic growth, especially during downturns. Conversely, contractionary policy reduces spending or raises taxes to slow inflation when the economy overheats. Theories vary in how effectively they manage economic stability—some emphasize boosting demand, while others focus on maintaining fiscal discipline. Overall, fiscal policy aims to stabilize growth, control inflation, and reduce unemployment through strategic budget adjustments.