What does fiscal policy refer to?

Fiscal policy refers specifically to the use of government spending and taxation to influence the economy. It involves the strategies and decisions made by the government regarding how much it spends (expenditures) and how much it collects in revenue (taxation). By adjusting these two elements, the government can stimulate economic growth, reduce unemployment, or manage inflation. For example, an increase in government spending can lead to more jobs and higher demand in the economy, while changes in tax rates can directly affect consumers' disposable income and spending behavior.

In contrast, monetary policies are conducted by a central bank and involve the management of the money supply and interest rates, which is separate from fiscal policy. Thus, identifying fiscal policy with government spending and tax policies captures its essence and distinguishes it from other economic management tools like foreign exchange or interest rate adjustments.