ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Nondiscretionary fiscal policy consists of policies that are built into the system so that an expansionary or contractionary stimulus can be given automatically. Unemployment insurance, the progressive income tax, and welfare serve as the built-in policies.

Detailed explanation-3: -There are two types of discretionary fiscal policy. Expansionary policy which spurs the economy during a recessionary gap and includes lowering taxes and increasing government pending. The second type is contractionary policy which is used to slow down an overheated economy during an inflationary gap.

Detailed explanation-4: -Discretionary fiscal policy refers to government policy that alters government spending or taxes. Its purpose is to expand or shrink the economy as needed.