Chapter 22 : Fiscal policy

• Fiscal policy refers to a policy used by the government to influence aggregate demand through the use of taxation and government spending.
• Fiscal policy aims to stimulate economic growth and stabilize the economy
• Contractionary fiscal policy is when the government reduces its spending or raises taxes so that there is less money available for consumers to spend on goods and services
• Expansionary fiscal policy is when the government spends more than it taxes or cuts taxes so that there is an increase in disposable income and therefore consumption expenditure
• Government spending can be financed from borrowing, printing money or raising taxes
• Borrowing involves issuing bonds which are sold to investors at a fixed interest rate
• An advantage of expansionary fiscal policy is that it increases employment levels