Fiscal policy is an estimate of taxes that are to be levied and also the expenditure that the government will make to run the economy of the country. Fiscal policy can be either expansionary or contractionary.
Expansionary policy means government will decrease the tax rates, increase the expenditures or both. This will increase the consumption of the products and profit of businesses increasing their investment expenditures, thereby increasing Gross Domestic Product (GDP) and fight the recession.
Contractionary policy means government will increase the tax rates, decrease the expenditures or both. This will decrease the consumption of the products and profit of businesses, cutting down their investment expenditures. Thus, decreasing Gross Domestic Product (GDP) and fight inflation.
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