Fiscal policy involves government decisions regarding taxation and spending aimed at influencing economic conditions. This includes managing the level of public expenditure, adjusting tax rates, and reallocating resources among different sectors to achieve macroeconomic objectives like growth, low unemployment, and stable prices. Policymakers utilize fiscal policy to respond to economic fluctuations, either stimulating the economy during downturns or cooling it in boom periods. Balancing fiscal policy effectively is vital for promoting long-term economic stability and ensuring public confidence in governance.