POLICY of a country. Fiscal policy is the use of government revenue collection (mainly taxes but also non-tax revenues such as divestment, loans) and expenditure (spending) to influence the economy.The above objectives are met in the following WAYS:Consumption Control – This way, the ratio of savings to income is raised.Raising the rate of investment.Taxation, infrastructure development.Imposition of PROGRESSIVE taxes.Exemption from the taxes provided to the vulnerable classes.Heavy taxation on luxury goods.Discouraging unearned income.Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives.Fiscal deficit = Total expenditure – Total receipts excluding borrowingsThis implies that fiscal policy is used to stabilize the economy over the course of the business cycle.In India, Fiscal Policy is formulated by the Ministry of Finance.Fiscal policy is playing an important role in the economic and social front of a country.Traditionally, fiscal policy is concerned with the determination of state income and expenditure policy. Contractionary monetary policy occurs when a nation's central bank raises interest rates and decreases the money supply.It's done to prevent inflation.The long-term impact of inflation can be more damaging to the standard of living than a recession.Expansionary monetary policy boosts economic growth by lowering interest rates.It's effective in adding more liquidity in a recession.The benefit of monetary policy is that it works faster than fiscal policy.The Federal Reserve votes to raise or lower rates at its regular Federal Open Market Committee meeting.It takes about SIX months for the added liquidity to work its way through the economy.