Fiscal Policy uses government taxation, spending, and borrowing to influence economy and achieve macroeconomic objectives. Expansionary policy: Increase spending or reduce taxes, increase deficit, stimulate demand, boost GDP and employment (inflationary risk). Contractionary policy: Reduce spending or raise taxes, reduce deficit, decrease demand, control inflation (recession risk). Automatic stabilizers: Built-in mechanisms (progressive taxes fall in recession, welfare spending rises)—stabilize without discretionary changes. Discretionary policy: Deliberate government actions (stimulus packages, tax cuts) in response to economic conditions. Fiscal indicators: Deficit, debt, spending composition, tax rates. Effectiveness: Depends on multiplier (larger for expansionary), time lags (recognition, decision, implementation), supply constraints, monetary policy coordination. Limitations: Crowding out (government borrowing raises interest rates), Ricardian equivalence (consumers anticipate future taxes, reduce current spending), Time lags reduce effectiveness, Political pressures often override economic logic. Coordination with monetary policy: Supportive (both expansionary or both contractionary) or conflicting. Indian context: Recent stimulus packages (COVID-19 response), MGNREGA expansion, infrastructure spending prioritization. ICAI focus: Policy tools, appropriate responses to conditions, effectiveness limitations. Exam tip: "Fiscal policy expands during recession, contracts during inflation"; identify economic condition first, then determine appropriate policy.