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What Is Fiscal Policy?

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What Is Fiscal Policy?

In a general context, the word "fiscal" means "of or pertaining to financial matters." In a policy sense, however, "fiscal" means "relating to government spending and taxes." Therefore, fiscal policy refers to the decisions that a government makes regarding how much to spend and how much to collect in taxes.

Fiscal policy can act in two directions- expansionary fiscal policy and contractionary fiscal policy- and be implemented in two ways- via spending changes or via tax changes. Let's examine how each of these options works.

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