Glossary · Macro · Fiscal policy

Fiscal policy

The government using its budget, spending and taxes, to steer total demand. Expansionary policy (more spending or lower taxes) shifts AD right to fight a recession, contractionary policy (less spending or higher taxes) shifts it left to cool inflation.

Also called: expansionary fiscal policy, contractionary fiscal policy

Watch it happen step by stepTaught in: Fiscal Policy Basics

Related terms

What shifts aggregate demandSpending multiplierAutomatic stabilizersCrowding out

More from fiscal policy

Budget deficit and national debtMarginal propensity to consume (MPC)Policy lagsTax multiplier

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