Fiscal policy refers to the use of government spending and taxation to influence a country's economy. By adjusting these financial tools, governments aim to promote economic growth, reduce unemployment, and control inflation. For example, increasing spending can stimulate demand, while raising taxes can help cool down an overheated economy. Governments typically implement fiscal policy through budgets that outline their planned expenditures and revenue. This policy can be classified as either expansionary, which seeks to boost economic activity, or contractionary, which aims to slow it down. Effective fiscal policy is crucial for maintaining economic stability and promoting overall prosperity.