Simply put, fiscal policy refers to the spending, taxation and borrowing that the government uses to tide over the economy through fluctuations in the business cycles
Government spending decisions are based on the fiscal policy prepared by the government. If you recall the formula for GDP [(C + I + G + (X - M)], you will remember that G stands for government spending. This is a major component of the GDP. So, if government spending increases, the GDP is positively impacted, and if government spending decreases, the GDP is negatively impacted.