Fiscal policy, or financial policy, is the method by which governments adjusts its levels of spending and taxation to directly influence the economy. Fiscal policy goes hand in hand with monetary policy (the means by which central banks influence money supply) to achieve various economic goals.
Fiscal policy gained popularity during the 1930s after it had been advocated by British economist John Maynard Keynes. He suggested that whenever a nation is in recession, putting more money in the hands of consumers could lead to economic growth. This could be done by reducing taxes or increasing government spending.
Various Fiscal Policies
The following are the three basic financial policies: neutral, expansionary, and contractionary.