The government has two main policy tools: government spending and taxes. Both of these policies impact total spending, and so they shift aggregate demand. The goal of fiscal policy is to increase spending during recessions, and cool down the economy during economic booms. 

Automatic stabilizers are policies and programs which act as a counterweight to the economy. During recessions, spending automatically increases for these programs (e.g. unemployment compensation), and taxes automatically fall (e.g. progressive income taxes). During economic booms, the result is the reverse. 

People react now to their expectations about the future. The permanent income hypothesis is that we tend to smooth out our consumption over our lifetime. This means that people will often counter-react to fiscal policies, reducing their overall impact on the economy. 

The government takes time to act, and their policy take time to have an effect. The recognition lag is the time it takes the government to notice a problem. The implementation lag is the time it take them to take action. The impact lag is the time it take for the action to have it's effect. Of the three, the impact lag is typically the longest.