Fiscal policy

Fiscal policy is all about how the government uses its budget—spending and taxes—to steer the economy. Imagine the economy’s like a car: when it’s moving too slow (a recession), the government might step on the gas by increasing its spending on things like infrastructure projects or cutting taxes to put more money in people’s pockets. This is supposed to boost overall demand and get things moving again. On the flip side, if the economy’s speeding out of control (high inflation), the government might hit the brakes by cutting back on spending or raising taxes to cool things down. For example, during a downturn, a government might build new highways and reduce income taxes to stimulate economic activity. Fiscal policy is basically how the government adjusts its financial actions to help keep the economy on track.