What does fiscal policy typically affect in a country?

Fiscal policy refers to the government's use of spending and taxation to influence the economy. It is a critical tool that governments employ to manage economic activity, targeting areas such as inflation, employment, and economic growth. When the government adjusts its spending levels and tax rates, it directly impacts aggregate demand in the economy. For instance, increasing government spending can stimulate economic activity, leading to higher employment rates, while tax cuts can provide consumers with more disposable income, thereby boosting consumption.

By targeting various sectors of the economy through these fiscal measures, the overall economic conditions of a country are influenced. This includes changes in GDP growth, unemployment rates, and inflation levels. Therefore, understanding the role of fiscal policy is crucial for comprehending how governmental decisions can shape the economic landscape of a country.