the state of fiscal policy is usually summarized by looking at the difference between what the government pays out and what it take in---that is, the government impact Fiscal policy is said to be tight or loose when revenue is higher than spending (the government budget is in surplus) and contractionary or expansionary when spending is higher than revenue (the budget is in deficit). Often the focus is not on the level of the deficit, but on the change in the deficit. The most immediate deficit of fiscal policy is to change the aggregate demand for goods and services. A fiscal expansion, for example, raises aggregate demand through one of two channels. First, if the government increases purchases but keeps taxes the same, it increases demand directly. Second, if the government cuts taxes or increases transfer payment, people’s disposable income rises, and they will spend more on consumption. This rise in consumption will, in turn, raise aggregate demand.