Fiscal Policy

[Jessica]

Fiscal policy uses government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, and inflation.

[Britney]

noun, efforts by the government to intentionally run a deficit in order to stimulate the economy during a recession. Loosely associated with [Keynesian] economics.
According to basic economic theory, recessions occur because there is a basic mismatch between [aggregate demand] and potential output. One approach for solving this is for the government to buy more goods and services than it has revenues to cover, thereby creating conditions in which effective demand is greater than the stock of goods currently in business inventory (given [recessionary] prices).
Under a stimulus, [the jolt] of extra money in circulation creates inflation, which has the effect of lowering real prices. Customers then respond to the {de facto} price reduction by buying more, which leads to more hiring, [thence] to more effective demand, thence to economic recovery.
Another reason fiscal policy stimulates the economy is that the private sector is not investing or consuming its own output. Increased taxes would simply reduce private consumption, so those cannot be increased; but spending is increased to fill the breach.

[Sonia]

a governments plan for deciding how much money to borrow and to collect in taxes, and how best to spend it, in order to influence the level of economic activity: