What is the primary goal of fiscal stimulus?

The primary goal of fiscal stimulus is to stimulate economic activity. Fiscal stimulus typically involves the government increasing its spending or decreasing taxes to boost demand within the economy. When the government injects money into the economy—either through direct spending on infrastructure, education, healthcare, or cutting taxes—it aims to increase consumer and business spending, encouraging economic growth.

By stimulating demand, the hope is to lead to increased production, job creation, and ultimately higher levels of income for individuals, which can further drive consumption. This is particularly relevant during periods of economic downturn when private sector demand is insufficient to support growth.

Reducing deficits, increasing taxes, or promoting international trade are not the primary focuses of fiscal stimulus. In fact, while fiscal stimulus might lead to temporary increases in deficits due to increased government spending, the objective is to enhance overall economic activity and recovery rather than to prioritize deficit reduction.