There are two central methods by which the government may respond to economic activity to guarantee strong economic growth. These are monetary policy and fiscal policy.

Fiscal Policy

The government may also ratify policies that change tax rates, introduce tax incentives or adjust spending. With respect to the government financial statement, the government classifies whether or not it needs to spend more money than it expects to collect. The process of assessing public spending wishes to cool an overheated economy or promote economic prosperity.

Monetary Policy

One common method that a government may try to influence the economic activities of a country is by adjusting the rate of borrowing money. Oftentimes, they can do this by raising or lowering the funds’ rate. This is a target interest rate which influences short-term rates on debt like credit cards and consumer loans.