Fiscal policy is how a government uses its spending and taxation to influence the economy. Unlike monetary policy (which is managed by the central bank), fiscal policy is directly controlled by the government — through budgets, tax rates, and public expenditure.
When the economy slows down, the government can boost spending on infrastructure, healthcare, or subsidies — or cut taxes so people have more money to spend. This is called expansionary fiscal policy. On the flip side, when inflation is running high, the government can raise taxes or cut spending to cool things down — that is contractionary fiscal policy.
For example, during COVID-19, the US government sent stimulus checks of up to $1,400 per person to boost consumer spending. That was fiscal policy in action — using government money to keep the economy from collapsing.