What are the three tools of fiscal policy?
The tools of fiscal policy are as follows: Government Spending: Adjusting government spending can affect economic output. Government expenditure includes the purchase of goods and services for the benefit of the community and can be classified as government consumption expenditure. Government spending on research activities and infrastructure intended to generate future profits is classified as Gross Government Investment. Transfer Payments: Used to describe government payments made to individuals through welfare programs, college grants, and social security. Taxes are a fiscal policy tool because taxes affect average consumer income, and changes in consumption lead to changes in real GDP. Therefore, by adjusting taxes, states can influence economic performance. Taxes can be changed in several ways.