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Fiscal Policy

Definition

Fiscal policy refers to the government's use of taxation and spending to influence the economy. It involves decisions on how much money the government should collect in taxes and how it should spend that money.

Analogy

Think of fiscal policy as a school fundraising event. The school decides how much money they need for different activities, like field trips or new equipment. They then determine how much money to collect from students (taxes) and allocate it towards these activities (spending).

Related terms

Monetary Policy: Monetary policy refers to actions taken by the central bank (in the US, it's the Federal Reserve) to control the supply of money and interest rates in order to stabilize the economy.

Budget Deficit: A budget deficit occurs when a government spends more money than it collects in revenue during a specific period.

National Debt: National debt is the total amount of money that a country's government has borrowed, typically through issuing bonds or borrowing from other countries or institutions.