Fiscal policy
Definition. Fiscal policy is the use of government spending and taxation to influence the level of aggregate demand and economic activity in order to achieve macroeconomic objectives such as growth, full employment, and price stability. Expansionary fiscal policy raises spending or cuts taxes, while contractionary fiscal policy does the reverse.
Changes in government spending and taxes affect aggregate demand directly and indirectly through the multiplier process, altering national income by a larger amount than the initial injection.
This term belongs to Fiscal Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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