Governments have two genuinely distinct major tools for steering a national economy, run by different institutions with different mandates. Monetary policy, run by a country's central bank, mainly adjusts interest rates and the money supply. Fiscal policy, decided by elected legislatures and the executive branch, adjusts government spending and taxation directly. Both aim at similar broad goals — steady growth, low unemployment, controlled inflation — but they work through entirely different mechanisms, are controlled by entirely different institutions, and, importantly, don't always point in the same direction at the same time.
Spending and taxation change demand directly, not through borrowing costs
Fiscal policy works by directly changing how much money the government injects into the economy through spending, or how much it withdraws through taxation. Expansionary fiscal policy — increasing government spending, cutting taxes, or both — puts more money directly into households' and businesses' hands, intended to boost overall economic demand during a slowdown. Contractionary fiscal policy — reducing spending, raising taxes, or both — pulls money back out of the economy, intended to cool an overheating economy or reduce government borrowing. This is a fundamentally different mechanism from monetary policy's approach, which works indirectly, by changing the cost of borrowing money and thereby influencing how much businesses and consumers choose to spend or save, rather than by government revenue or spending itself changing hands directly.
Legislative decision-making makes fiscal policy slower and more overtly political
Because fiscal policy decisions require legislative approval — passing a budget, changing tax law — they typically move considerably more slowly than monetary policy decisions, which a central bank's governing body can often make and implement much faster, without needing to pass through a full legislative process first. Fiscal policy is also more directly, visibly political, since spending and taxation decisions inherently involve value-laden choices about which programmes to fund and who bears the tax burden, decisions elected officials are directly accountable to voters for, in a way a technically independent central bank's interest rate decisions typically aren't. This difference in speed and political visibility is part of why fiscal and monetary policy can sometimes work at cross purposes — a central bank raising interest rates to fight inflation while a legislature simultaneously increases spending can find the two policies partially cancelling each other's intended effect, since each institution is pursuing its own mandate independently, without formal coordination guaranteeing the two will always align.
What we're still unsure about
The basic mechanisms of fiscal policy, and its institutional and procedural differences from monetary policy, are well established in economics and public policy. What remains genuinely, actively debated among economists is exactly how large a fiscal stimulus needs to be to meaningfully affect economic activity in a given situation, and how much of that spending's effect gets offset by other economic responses it triggers — the size of the fiscal "multiplier," how much additional economic activity a given amount of government spending or tax change actually generates, is a long-running empirical and theoretical debate in macroeconomics without a single settled answer that applies identically across every economic context.
This sits inside Fiscal Policy, one of eight topics in Macroeconomics, one of five domains in Economics, one of seventeen subjects the app can quiz you on.