What is fiscal stimulus intended to achieve?

Fiscal stimulus is a strategy used by governments to encourage economic activity during periods of recession or economic downturn. The primary goal of fiscal stimulus is to stimulate demand by increasing government spending and/or cutting taxes, which in turn aims to boost consumer spending and investment.

When the government increases its spending—whether on infrastructure projects, public services, or other initiatives—it directly injects money into the economy, providing jobs and income to workers and businesses involved in those projects. Additionally, tax cuts allow individuals and businesses to retain more of their income, increasing their disposable income and enabling them to spend more. This combination of increased government spending and lowered taxes is designed to lift overall demand, encourage consumption, and facilitate economic growth, thereby mitigating the negative impacts of a recession.

The other options hint at different economic concepts that are not aligned with the aims of fiscal stimulus. Reducing government spending during a recession, for example, would lead to decreased overall demand, worsening economic conditions rather than improving them. Enhancing tax rates to increase revenue typically constrains consumer spending and could have the opposite effect of what fiscal stimulus intends to achieve. Similarly, while stabilizing prices can be a concern in a competitive market, it is not the primary objective of fiscal stimulus; rather, stimulus is more