Fiscal policy refers to government actions involving taxation, spending and borrowing that are used to influence a country's economy. It is one of the three main tools (alongside monetary policy and microeconomic policies) that governments use to manage their economies.
The goal of fiscal policy is to stabilize the economy by increasing employment, output, and overall economic activity while also reducing inflation and deflation. It does this through adjusting tax rates, government spending levels, and borrowing levels. For example, during a recession, governments may increase their spending or cut taxes in order to stimulate demand and boost the economy. On the other hand, during periods of high inflation, they may raise interest rates and reduce spending to cool down the economy.
Overall, fiscal policy is an important tool for governments to use in managing their economies, but it must be used carefully as it can have significant effects on a country's finances and economic stability.