Fiscal policy is the use of government spending, taxation and the budget balance to achieve objectives. Fiscal policy can have microeconomic functions (tackling individual market failures) or macroeconomic functions (promoting growth, reducing unemployment and controlling inflation).
Expansionary (inflationary) fiscal policy involves increasing government spending or reducing taxation, using a budget deficit to stimulate aggregate demand. Aims to boost economic growth and reduce unemployment
Contractionary (deflationary) fiscal policy involves reducing government spending or increasing taxation, using a budget surplus to depress aggregate demand. Aims to control inflation and correct a current account deficit
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