What is the aim of fiscal policy in government economic management?

The aim of fiscal policy in government economic management is to control spending and taxation. This involves the government's use of its budgetary tools to influence the economy. By adjusting levels of government spending and the rates of taxation, fiscal policy can impact overall economic activity, stimulate growth during downturns, or cool off an overheating economy.

When the government increases spending or decreases taxes, it injects money into the economy, potentially leading to higher demand for goods and services. Conversely, if the government raises taxes or cuts spending, it can slow down economic activity, which is particularly useful when controlling inflation.

Understanding fiscal policy is essential because it directly links to how a government responds to economic challenges and aims to stabilize or stimulate growth, manage unemployment, and maintain price stability. Without this active role in adjusting spending and taxation, a government may struggle to effectively respond to economic fluctuations.