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What is Fiscal Policy?

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Floral Pattern

Fiscal policy is the use of public expenditure and taxation to affect the economy, particularly macroeconomic conditions.

Aggregate demand

Savings and investment

Tax rates

Income distribution

The business cycle

The distribution of resources and money supply

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At a macroeconomic level, fiscal policy can have a major impact on:

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What Is the Purpose of Fiscal Policy?

In general, the goal of fiscal policy is to encourage long-term economic expansion. When assessing the state of an economy as a whole, economists focus on a few important metrics.

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 Price stability.

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The rate of inflation, which should ideally be kept between 2-3%, is used to gauge price stability.

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Economic growth.

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Ideally, the Gross Domestic Product (GDP) growth rate should be between 2-3%.

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Employment rate.

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Based on the unemployment rate, which economists often attempt to keep between 4 and 5%.

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Types of Fiscal Policy

expansionary fiscal policy

contractionary fiscal policy

neutral 

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