In any country, the government has a duty to ensure it enforces polices that steer its economy towards achievement of full employment, growth, and inflation control. For example, if the government perceives inflation to be a problem, it might use two measures, namely the fiscal and monetary policies to influence the economic activities. For example, to regulate the interest rates and money supply, monetary policies are the most suitable. On the other hand, the government may opt to use the fiscal policies to tax and then spend on its development agendas.
According to economics, through the use of the Philips curve, inflation is inversely proportion to unemployment. As such, when the government needs to increase the levels of employment or to come out of a recession, it will apply the expansionary monetary policies that will ensure that there is increased money supply in the industry. For example, a reduction in lending rates will ensure that people can borrow more from the banks and use the money to start businesses for self-employment. On the other hand, any time that the government perceives inflation to be a problem; it will apply contraction policy aimed at reducing the money supply in the economy through increase in interest rates that will hinder borrowing.
When the government influences the economy through taxation and spending, then we can say it is applying the fiscal policy. For example, the state may opt to increase taxes on certain products and then spend the money to build infrastructure such as roads, and social amenities. At the time of recession, the government will increase its expenditure and reduce taxes. On the other hand, during boom, the government may reduce spending and increase taxation. As such, any government has a duty to actively steer its economy in the right direction through enacting and implementation of policies that favors the structure of its economy.