Fiscal policy plays a key role in managing the economy because it affects aggregate demand, employment and inflation. The government uses fiscal policy to regulate spending levels and tax rates to influence the economy. During a recession, the government may increase spending or lower taxes to increase demand and economic activity.

On the other hand, during times of high inflation, the government may reduce spending or increase taxes to reduce demand and control prices. The government has several tools at its disposal to manage the public finance deficit. One common tool is to adjust tax rates. Raising taxes can help generate more revenue to reduce the deficit. Another option is to reduce public spending in non-essential sectors to reduce overall costs. Governments can also issue bonds to borrow money to cover deficits, but this can lead to an increase in debt. In addition, some governments may choose severe measures to reduce budget deficits, which include major spending cuts in various sectors. In general, managing a budget deficit requires a careful balance between spending, taxes, borrowing and economic growth.