The government can influence the economy through fiscal policy from "summary" of Public Finance by Harvey S. Rosen
Fiscal policy refers to the use of government spending and taxation to influence the economy. By adjusting the levels of government spending and taxation, policymakers can stimulate or slow down economic activity in order to achieve certain macroeconomic goals. For example, during economic downturns, the government can increase spending or cut taxes to boost aggregate demand and stimulate economic growth. Conversely, during periods of high inflation, the government can reduce spending or raise taxes to reduce aggregate demand and cool down the economy. One of the main tools of fiscal policy is government spending. When the government spends money on public goods and services, it directly injects funds into the economy, creating jobs and stimulating economic activity. This can have a multiplier effect, as the worker...
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