Passage: Fiscal policy is the use of government spending and taxation to influence the economy. During a downturn, governments often employ 'expansionary' fiscal policy, increasing spending or cutting taxes to boost aggregate demand. This approach is rooted in Keynesian economics, which suggests that the government should act as a counter-cyclical force. By contrast, 'contractionary' fiscal policy is used during times of high inflation to cool the economy down by reducing spending or raising taxes. The effectiveness of these policies depends on timing and the size of the 'fiscal multiplier.' If the government waits too long to intervene, the policy may take effect just as the economy is already recovering, potentially leading to unwanted inflation.