Fiscal policy refers to the government's use of spending, taxation, and borrowing to influence the economy. The objectives of fiscal policy include maintaining economic stability by controlling inflation or deflation, diverting resources to desirable channels, and increasing welfare. Expansionary fiscal policy involves government spending exceeding tax revenue to stimulate the economy during recessions, while contractionary policy reduces spending below tax revenue to pay down debt. The government implements fiscal policy using instruments like taxation, government expenditures, public debt, and budget deficits or surpluses.