Introduction
Economic stability and growth are key to the prosperity of nations. Governments can help achieve these goals by using various tools to influence economic conditions. The main objectives of fiscal policy include achieving economic stability, fostering economic growth, and redistributing wealth.
In this article, we will explore how fiscal policy works, how it may affect crypto markets, and some of its benefits and challenges.
How Does Fiscal Policy Work?
There are three types of fiscal policy: neutral, expansionary, and contractionary.
Contractionary fiscal policy
Contractionary fiscal policy involves reducing government spending and increasing taxes to slow economic growth and combat inflation. By taking money out of the economy, the government aims to reduce overall demand, which can help lower prices.
- As a result, Alice and Bob,
- Residents of Country C,
- Find that they have less money to spend.
Alice decides to delay her plans to buy a new car while Bob cancels his planned purchases. Consumer demand drops and businesses see a decline in sales. This helps cool down the economy and control the rising prices.