Government using its power:
- Taxes
- Government Spending
- Government Borrowing to stabilize the economy
Types of Fiscal Policy
- Expansionary Fiscal Policy
- Contractionary Fiscal Policy
You always want to use the expansion to speed economy up when theyre in a recession, and contractionary to slow economy down when in expansion.
Tools
Changes in Government Spending
Cut or raise budget of certain programs
Changes In Taxation
Increase or decrease tax
Automatic Stabilizers(Welfare)
- EI
- Pension
- Etc… These reduce it a bit, but are usually not enough to get you out of a recession
Each of these tools adheres to the Multiplier Effect. Government needs to inject money for people to want to spend money.