ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Discretionary fiscal policy and automatic stabilizers are frequently confused with each other. If a government has to take any action to make it happen, it is discretionary fiscal policy. If it is something that happens on its own, it is an automatic stabilizer.

Detailed explanation-2: -How are automatic stabilizers different from changes in discretionary fiscal policy? One of the benefits of automatic stabilizers is that they do not require legislative action and respond quickly to economic downturns.

Detailed explanation-3: -Automatic stabilizers respond immediately to an economic fluctuation. On the other hand, the discretionary policy takes a long period for the implementation of the policy and the effects to be felt in an economy.

Detailed explanation-4: -However, the word “discretionary policy” is used to describe a change in taxes or government spending implemented to stabilize the economy. Instead of following a predetermined set of rules, it is decided by the policymakers on the spot based on their best judgment.