Achieving sustainable economic growth is a complex endeavor, requiring careful adjustment of government spending and tax policies. Fiscal policy, the application of these tools by governments, can stimulate growth by enhancing aggregate demand or by allocating resources into productive sectors. Conversely, excessive expenditure can lead to price in
How Fiscal Policy Affects Inflation
Governments frequently implement monetary policies to influence the economy. These measures can have a significant impact on inflationary pressures. When governments adjust spending or raise taxes, it can dampen aggregate demand within the economy. Strong levels of aggregate demand can contribute to inflation as businesses raise prices to respond t