Fiscal policy aims to stabilize the economy by influencing aggregate demand and output.

Government spending and taxation are the primary instruments of fiscal policy.

Expansionary fiscal policy, characterized by increased government spending or tax cuts, leads to an increase in aggregate demand.

Contractionary fiscal policy, involving decreased government spending or tax increases, is primarily used to control inflation.

Expansionary fiscal policy can lead to increased government debt if the government's spending exceeds its revenue.

The effect of fiscal policy on interest rates depends on various factors, including the type of policy measures implemented and the state of the economy.

Budget deficit occurs when the government's spending exceeds its revenue, leading to a negative fiscal balance.

Unemployment benefits are an example of an automatic stabilizer, as they provide income support to unemployed individuals, helping to stabilize aggregate demand during economic downturns.

Fiscal drag refers to the tendency of government revenue to increase over time due to factors such as inflation and economic growth, leading to a potential decrease in disposable income and aggregate demand.

Fiscal policy and monetary policy are often coordinated to achieve common economic goals, such as stabilizing the economy, controlling inflation, and promoting economic growth.

The fiscal multiplier refers to the impact of government spending on the economy, measuring the change in output resulting from a change in government spending.

Contractionary fiscal policy, characterized by decreased government spending or tax increases, can lead to reduced economic growth if it dampens aggregate demand too much.

The effect of fiscal policy on income distribution depends on the specific policy measures implemented, such as progressive taxation or targeted spending programs.

The balanced budget amendment is a proposed constitutional amendment that would require the government to balance its budget each year, thereby limiting its ability to run a budget deficit.

The effect of fiscal policy on the exchange rate depends on various factors, including the type of policy measures implemented and the state of the economy.