Essay on Fiscal Policy Approaches. FISCAL POLICY refers to the government�s choices regarding the overall level of government purchases or taxes. It influences saving, investment and growth in the long run, but also if we particularly look at the short run, fiscal policy affects the aggregate demand for goods and services (and thus helping to curb inflation). According to www.answers.com: Fiscal Policy Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates, and government spending, in an effort to control the economy. DISCRETIONARY FISCAL POLICY, is defined according to the following site, http://wps.aw.com/aw_rohlf_econreason_5/0,5759,11635-,00.html, as: The deliberate changing of the level of government spending or taxation in order to guide the economy's performance. So the discretionary policy approach is intervention, where the government adjusts it activities to try to correct the conditions perceived in the economy (a slightly different variation of active fiscal policy is policy rule, ......

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