fiscal policy

Example

“The government used expansionary fiscal policy — cutting taxes and increasing spending — to stimulate the economy.”

Memory Tip

FISCAL = financial. Fiscal policy is the government's financial policy — taxes and spending.

Why It Matters

Fiscal policy directly affects your wallet through changes in taxes, interest rates, and government spending that influence inflation, employment, and economic growth. Understanding how government spending and tax decisions work helps you anticipate economic changes and make better decisions about saving, investing, and spending your money.

Common Misconception

Many people believe fiscal policy and monetary policy are the same thing, but they are different tools. Fiscal policy involves government taxation and spending decisions, while monetary policy involves central bank control of interest rates and money supply. Confusing these two can lead to misunderstanding why the economy behaves the way it does.

In Practice

During the 2020 pandemic, the U.S. government used expansionary fiscal policy by distributing three stimulus checks totaling up to 3200 dollars per person and enhancing unemployment benefits. This government spending aimed to keep the economy afloat during lockdowns, but it also contributed to inflation reaching 9 percent by 2022, which reduced the purchasing power of consumers and affected mortgage rates and grocery prices.

Etymology

From Latin 'fiscus' meaning 'treasury, money basket' — policy about the government's money.

Common Misspellings

Related Terms

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