Question

What is it called when a country uses changes to taxes and spending to influence the macroeconomy?

Answer 1

When a country uses changes to taxes and spending to influence the macroeconomy, it is called fiscal policy.

The use of government spending and tax policies to influence economic conditions, particularly macroeconomic conditions, is referred to as fiscal policy. These include total goods and services demand, employment, inflation, and economic growth.

During a recession, the government may reduce tax rates or increase spending in order to stimulate demand and economic activity. To combat inflation, it may raise interest rates or cut spending to cool the economy.

Fiscal policy is frequently contrasted with monetary policy, which is implemented by central bankers rather than elected officials.

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