Fiscal policy is the government's use of spending and taxation to influence the economy — managed by the executive branch (President) and legislative branch (Congress). Expansionary fiscal policy: increase spending and/or cut taxes to stimulate demand. Contractionary fiscal policy: cut spending and/or raise taxes to cool overheated economy. Examples of fiscal stimulus: 2008-2009 TARP and stimulus checks ($800B), 2020-2021 COVID relief ($5 trillion+ across packages). Fiscal multipliers vary — direct cash transfers spend quickly; infrastructure investment takes years. Distinguished from monetary policy (Fed). The US runs persistent fiscal deficits funded by Treasury bond issuance.
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Fiscal Policy
August 22, 2026 · Aditya Gupta
Finance
Related terms
Bond Market
The bond market is the global market for debt securities — US Treasuries, corporate bonds, municipal bonds, mortgage-backed…
Bubble
An asset bubble is a sustained rise in asset prices well above fundamental value, driven by speculation rather…
Comparative Advantage
Comparative advantage is David Ricardo's foundational economic theory: countries should specialize in producing goods where they have the…
Consumer Price Index
The Consumer Price Index (CPI) is the most widely-cited inflation measure in the US — tracking price changes…
Cost of Capital
Cost of capital is the rate of return investors require to provide capital to a business — combining…
Deflation
Deflation is the sustained decline in general price levels — opposite of inflation. Sounds appealing (things get cheaper!)…
