What is the main purpose of fiscal policy?

The main purpose of fiscal policy is to influence spending and tax rates in the economy. Fiscal policy involves the government's use of taxation and spending to regulate economic activity and achieve macroeconomic objectives such as growth, employment, and price stability. By adjusting tax rates, the government can either encourage or discourage consumption and investment by individuals and businesses. Similarly, government spending can stimulate demand in the economy, particularly during a recession, by providing jobs and funding for public services and infrastructure. This tool is essential for managing economic fluctuations and maintaining a stable economic environment.

In contrast, regulating labor productivity pertains more to workforce efficiency and is generally the domain of labor policies and market conditions. Determining market prices of goods is primarily driven by supply and demand dynamics within the market, rather than fiscal measures. Controlling export and import activities relates more to trade policy and tariffs rather than fiscal policy, which focuses on domestic economic management through taxation and spending strategies.