This is the main source of government revenue and this is used to... See full answer below. (2) Non Discretionary Controls. When government expenditure on goods and services increases, or tax revenue collection decreases, it is called an expansionary or reflationary stance. Fiscal policy is a key tool of macroeconomic policy, and consists of government spending and tax policy. Expansionary fiscal policy is when the government expands the money supply in the economy using budgetary tools to either increase spending or cut taxes—both of which provide consumers and businesses with more money to spend. (v) This policy is a prolonged lag which in practice has a disturbing effect on the economy. Imagine that Sam is sick. Basically, fiscal policy intercedes in the business cycle by counteracting issues in an attempt to establish a healthier economy, and uses two tools - taxes and spending - to accomplish this. For example, governments frequently spend more than they bring in through taxation. The instruments of fiscal policy are not the only tools policymakers use to promote healthy economic conditions. What are the 2 basic types of tools the government uses to try to affect the economy? Learn more about fiscal policy in this article. They are taxation and spending. The tools used by the government in implementing fiscal policy are: 1) Taxes. Fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. He's at home right now, and the doctor's been called. Fiscal Policy Tools. What are the two tools of fiscal policy that governments can use to stabilize an economy? The main tools of fiscal policy are grouped under two main heads: (1) Discretionary Fiscal Policy. Taxation: Taxation is a powerful instrument of fiscal policy in the hands of public authorities which greatly effect the changes in disposable income, consumption and investment. When deciding fiscal policy, government officials have two tools that they can use. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. ... Fiscal policy can make use of either government spending or taxes, or a combination of the 2 tools... Fiscal policy generally focuses on. 1. Monetary Policy 2. B. An independent government agency, the Federal Reserve Board, sets monetary policy. In the United States, fiscal policy is carried out by the executive and legislative branches of government. Fiscal Policy. Whilst they are somewhat interlinked, they are not completely dependent on each other.   In the United States, the president influences the process, but Congress must author and pass the bills. 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