How Fiscal Policy Affects the National Economy

Government economic activity affects a nation’s economy, and vice-versa. This chapter analyzes the impact of government economic policy, in particular fiscal policy, on the national economy. A variety of models and experiences will be used to suggest how fiscal policy affects the rate of economic growth and inflation, the balance of payments, and the working of monetary policy. In addition, the chapter reviews how fiscal policy can be used for macroeconomic management, including ways by which fiscal policy can promote the economic growth.