Oct 24, 2025

Fiscal Policy

• Fiscal policy is how a government uses its spending and taxation to influence the economy including businesses, jobs, and consumer demand.

How do I remember it?

• Think of it like this:

“Fiscal = Finances = Government’s Wallet”

Fiscal policy is how the government opens or closes its wallet to influence the economy!

Real world example

• United States COVID-19 Stimulus in 2020–2021

The U.S. government increased spending massively by providing stimulus checks, unemployment benefits, small business loans like the PPP loan.

Taxes were reduced or deferred for some businesses!

The main goal was to prevent a deep recession by keeping money flowing to consumers and businesses.

• Effect:

It ultimately helped businesses stay afloat and consumers were spending which led to expansionary fiscal policy.