What is the primary goal of fiscal policy?

The primary goal of fiscal policy is to stabilize the economy through taxation and spending. Fiscal policy involves the government adjusting its levels of spending and taxation to influence the economy. By increasing or decreasing taxes and government spending, fiscal policy can help manage economic fluctuations, such as inflation or recession.

For instance, during an economic downturn, a government may implement expansionary fiscal policy by increasing spending and reducing taxes to stimulate economic growth, boost demand, and reduce unemployment. Conversely, during periods of high inflation, a contractionary fiscal policy may be employed, involving increased taxes and reduced spending, which can help cool down an overheated economy.

This approach directly impacts economic activity, job creation, and overall economic welfare, making stabilization a central objective of fiscal policy.