In economic terms, what does fiscal policy primarily involve?

Fiscal policy primarily involves tax rates and public spending, as it is the means by which a government influences its economy through adjustments in its budgetary spending and tax policies. The government can increase or decrease its spending on public services and infrastructure, or adjust tax rates, such as income tax and sales tax, to either stimulate the economy or cool it down.

When the government increases spending or cuts taxes, it can boost economic activity by increasing demand for goods and services. Conversely, by lowering spending or increasing taxes, the government can reduce inflationary pressures and aim to stabilize the economy.

This approach is in contrast to monetary policy, which is concerned with managing interest rates and the money supply—an area more directly linked to the central bank. While fiscal policy focuses on government budgeting decisions, monetary policy operates through mechanisms such as interest rate adjustments. Hence, the emphasis on tax rates and public spending clearly delineates fiscal policy's role in shaping economic conditions.