The use of taxation and expenditure by the government to affect the economy is known as fiscal policy. Fiscal policy is often used by governments to encourage robust, long-term growth and to lower poverty.
When the economy is weak, fiscal policy can help maintain private sector incomes and aggregate demand. When the economy is strong, fiscal policy can help moderate economic activity. The so-called "automatic fiscal stabilisers" are a key stabilizing component of fiscal policy.
Economic growth can be significantly influenced by fiscal policy. Countercyclical fiscal expansion can aid in sustaining aggregate demand and GDP in the short run during cyclical downturns.
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