In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence a country's economy. Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. Fiscal policy is therefore the use of government spending, taxation and transfer payments to influence aggregate demand. These are the three tools inside the fiscal policy toolkit. Both fiscal and monetary policy are an attempt to reduce economic fluctuations and smooth out the economic cycle. The main difference is that Monetary policy uses interest rates set by the Central Bank. Fiscal policy involves changing government spending and taxes to influence the level of aggregate demand