What is the main purpose of fiscal policy?

The primary aim of fiscal policy is to manage the economy by influencing overall economic activity through government spending and taxation decisions. By adjusting these two levers, fiscal policy can either stimulate or slow down economic growth, depending on the current economic conditions.

When the government increases its spending or decreases taxes, it injects more money into the economy, which can lead to improved economic growth and job creation, especially during downturns. Conversely, reducing government spending or increasing taxes can help to manage inflation when the economy is overheating.

This intervention is crucial for stabilizing the economy, promoting sustainable growth, and ensuring that inflation remains at a healthy level. Thus, the focus on managing inflation and improving economic growth effectively captures the essence of what fiscal policy aims to achieve.

In contrast, regulating the banking system pertains more to monetary policy and the actions of central banks, while controlling interest rates and adjusting the money supply are also functions of monetary policy rather than fiscal policy.