ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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changes in government spending or taxes that destabilize the economy
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changes in taxes and government spending made by Congress to stabilize the economy
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changes in taxes and transfers that occur as GDP changes
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policies that are already in place
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Detailed explanation-1: -If the economy is in a recession, discretionary fiscal policy can lower taxes and increase spending while the Fed enacts an expansionary monetary policy. It will be done by lowering the fed funds rate or through quantitative easing. The Federal Reserve created many other tools to fight the Great Recession.
Detailed explanation-2: -Discretionary government spending and tax policies can be used to shift aggregate demand. Expansionary fiscal policy might consist of an increase in government purchases or transfer payments, a reduction in taxes, or a combination of these tools to shift the aggregate demand curve to the right.
Detailed explanation-3: -Fiscal policy can be implemented through either discretionary or automatic measures to stabilize economic fluctuations. The discretionary elements of fiscal policy are deliberate and focused actions taken by the government to increase or decrease aggregate demand.
Detailed explanation-4: -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.
Detailed explanation-5: -Fiscal policy refers to the deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. Discretionary fiscal policy will stabilize the economy most when deficits are incurred during recessions and surpluses during inflations.