What do policymakers aim to achieve with fiscal policy?

Policymakers use fiscal policy primarily to stabilize the economy. This involves adjusting government spending and taxation to influence economic activity. By increasing spending during a recession or decreasing taxes, the government can stimulate demand, help boost employment, and spur economic growth. Conversely, during periods of inflation, policymakers may cut spending or increase taxes to cool down the economy.

Stabilizing the economy aims to mitigate the effects of business cycles, ensuring that economic growth is steady and sustainable. This approach helps buffer the economy against fluctuations that could lead to high unemployment or runaway inflation. Therefore, the focus on economic stability captures the essence of what fiscal policy seeks to accomplish.