What does fiscal policy primarily involve?

Fiscal policy primarily involves adjusting spending and tax rates. This aspect of economic policy is conducted by the government to influence the economy's overall activity. By changing tax rates, the government can either increase disposable income for individuals and businesses, thereby encouraging spending and investment, or decrease it to cool off an overheating economy. Similarly, government spending directly impacts economic demand; an increase in government expenditure can stimulate economic growth, particularly during recessions, while reducing spending can help manage inflation during periods of economic expansion. This interplay between taxation and government spending is crucial for maintaining economic stability, promoting growth, and addressing unemployment.

In contrast, regulating monetary supply falls under the purview of monetary policy, which is managed by central banks. Controlling inflation levels is also a goal of monetary policy, not fiscal policy. Lastly, managing international trade revolves around trade policies and agreements rather than fiscal instruments directly related to government spending and taxation.