Explain fiscal policy and how it can be used

Fiscal policy is the use of governmental spending and taxation to influence aggregate demand (AD= C + I + G +(X-M)) in an economy. It can be used to boost economic growth, control inflation and stabilise economic growth.A loose fiscal policy is where governmental spending is high and taxation is low in order to boost aggregate demand. Low tax means there is more disposable income and an injection of governmental spending is a component of aggregate demand (G) which therefore increased AD. Although this will lead to a worsening of the budget deficit.A tight fiscal policy is the opposite when governmental spending is low and taxation is high and it is used to reduce inflationary pressures and will actually improve the governmental budget.