Fiscal Policy is changing the governments budget to influence aggregate demand. i.e. changing taxes and spending.Discretionary fiscal policy means the government make changes to tax rates and or levels of government spending. For example, cutting VAT in 2009 to provide boost to spending.

Expansionary fiscal policy is cutting taxes and/or increasing government spending. Lower taxes (e.g. lower VAT in the case of the UK) increases disposable income and in theory, should encourage people to spend.

Discretionary fiscal policy are different to automatic fiscal stabilisers. Automatic stabilisers occur where in a recession a government automatically spends more because there are more claiming unemployment benefits. However, the government may feel these automatic stabilisers are insufficient and so they decide to increase public work spending schemes too.