When governments create and implement spending policies that influence macroeconomic conditions, this is referred to as fiscal policy. Through the use of fiscal policy, regulators attempt to improve unemployment rates, control inflation, stabilize business cycles and influence interest rates in an effort to control the economy. In times of recession the U.S. Government will use fiscal policy in the attempt to save the economy. Fiscal policy has been used in the past. Fiscal policy can produce both good and bad outcomes.
Fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883–1946), who believed governments could change economic performance by adjusting tax rates and government spending. Expansionary fiscal policy happens when government spending exceeds tax revenue, and is usually undertaken during recessions. The goal of expansionary fiscal policy is to close a recessionary gap, stimulate the economy, and decrease the unemployment rate. This is accomplished by increasing aggregate expenditures and aggregate demand thr