Governments play a crucial role in shaping economic outcomes through policies and regulations. They influence the economy by setting tax rates, controlling inflation, and managing public spending.
Fiscal policy involves government spending and tax policies. By adjusting these levers, governments can stimulate economic growth or cool down an overheated economy.
Effective fiscal policy can lead to sustainable economic growth.
Monetary policy, managed by central banks, involves controlling the money supply and interest rates. This is vital for maintaining price stability and fostering economic growth.