Fiscal Policy is comprised of government spending and revenue. The government has expenditures, such as defense, infrastructure, education, social security and other public assistance, and hundreds of other items. To fund these costs the government receives funds in the form of taxes, or through other means such as the sale of treasury bills.

Fiscal policy results in three possible positions of cash flow:

• Expansionary - the government spends more than it takes in. This stimulates economic activity, however pushes the government into a budget deficit (or shrinkage of a budget surplus).
• Contractionary - the government spends less than it takes in. This helps reduce the budget deficit, or increase an already existing surplus.
• Neutrality - input and output match. For example taxes received match spending. This is a rare occurrence.

Fiscal policy isn't much different than household budgeting. However the government has so many other concerns and responsibilities that the decision to maintain debt through an expansionary policy is often to balance a different need of the economy such as to avoid or get out of a recession.

Fiscal policy is often used together with monetary policy to help keep the economy in check.

Read more:

• The Gross National Product (GNP)
• The Gross Domestic Product (GDP)
• The Unemployment Rate
• The Consumer Price Index
• The Consumer Confidence Level
• Interest Rates
• Inflation
• Stagflation
• The Trade Deficit
• What is a recession?
• What is a depression?
• The Federal Reserve
• Fiscal Policy
• Monetary Policy