ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An expansionary discretionary fiscal policy is typically used during a recession. A decrease in taxation will lead to people having more money and consuming more. This should also create an increase in aggregate demand and could lead to higher economic growth.

Detailed explanation-2: -Fiscal policy means using either taxes or government spending to stabilize the economy. Expansionary fiscal policy can close recessionary gaps (using either decreased taxes or increased spending) and contractionary fiscal policy can close inflationary gaps (using either increased taxes or decreased spending).

Detailed explanation-3: -Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.

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: -a tax decrease passed into law by Congress is an example of a discretionary fiscal policy used to correct a recessionary gap.