When a government spends heavily or cuts taxes during near-full employment, it risks "overheating" the economy. Excess demand pushes prices up, leading to high inflation.
The most direct impact of fiscal policy is on . Fiscal Policy and Macroeconomic Imbalances
Fiscal policy is a balancing act. While it is essential for correcting market failures and supporting growth, its misuse can lead to systemic instability. Achieving a "General Equilibrium" requires fiscal authorities to work in tandem with monetary policy to ensure that government actions don't inadvertently create the very imbalances they seek to avoid. When a government spends heavily or cuts taxes
When a government runs a large budget deficit, it often increases the national demand for credit. If domestic savings aren't enough to fund this, the country must "import" capital from abroad. Fiscal Policy and Macroeconomic Imbalances