fiscal policy

Definition

Decisions by the President and Congress, usually relating to taxation and government spending, with the goals of full employment, price stability, and economic growth. By changing tax laws, the government can effectively modify the amount of disposable income available to its taxpayers. For example, if taxes were to increase, consumers would have less disposable income and in turn would have less money to spend on goods and services. This difference in disposable income would go to the government instead of going to consumers, who would pass the money onto companies. Or, the government could choose to increase government spending by directly purchasing goods and services from private companies. This would increase the flow of money through the economy and would eventually increase the disposable income available to consumers. Unfortunately, this process takes time, as the money needs to wind its way through the economy, creating a significant lag between the implementation of fiscal policy and its effect on the economy.

Use fiscal policy in a sentence

The fiscal policy was really good and I trusted it because the people who were in charge were trustworthy and efficient.

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The White House has just announced an updated fiscal policy which will govern all major economic decisions of the US for the next four years.

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With the economy in a nosedive and consumer spending at an all-time low, leading to the loss of manufacturing jobs, the President addressed Congress on the need to pass legislation to lower tax rates, especially on the wealthy, in the hopes that new jobs would be created and a sound fiscal policy.

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