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InvestHub.com's
Finance Dictionary and Glossary of Investment Terms

fiscal policy  

Definition 1.

Decisions by the President and Congress, usually relating to taxation and government spending, with the goals of full employment, price stability, and economic growth. By changing tax laws, the government can effectively modify the amount of disposable income available to its taxpayers. For example, if taxes were to increase, consumers would have less disposable income and in turn would have less money to spend on goods and services. This difference in disposable income would go to the government instead of going to consumers, who would pass the money onto companies. Or, the government could choose to increase government spending by directly purchasing goods and services from private companies. This would increase the flow of money through the economy and would eventually increase the disposable income available to consumers. Unfortunately, this process takes time, as the money needs to wind its way through the economy, creating a significant lag between the implementation of fiscal policy and its effect on the economy.
 

Definition 2.

Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates, and government spending, in an effort to control the economy.
 

Definition 3.

Government spending and taxing for the specific purpose of stabilizing the economy.
 
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