Fiscal policy is the use of government spending and tax policy to influence the path of the economy over time. Which of the following is an example of discretionary, expansionary fiscal policy? View desktop site. Question 3 Which of the following is an example of discretionary fiscal policy? An increase in income tax receipts during an expansion … Discretionary fiscal policy uses two tools. Which of the following is an example of a discretionary fiscal policy that could be used to return the economy to full-employment REAL GDP? All of the following are examples of fiscal policy, EXCEPT when the: Question 1 options: a) U.S. Congress approves an economic stimulus package. Fiscal policy refers to the actions governments take in relation to taxation and government spending. Which of the following is an example of discretionary fiscal policy? Price stability Lower unemployment compensation payments designed to reduce the cost of labor to businesses Higher unemployment compensation payments that occur when the economy is in a recession Higher taxes caused by increased incomes during an economic upturn Lower taxes caused by tax reform designed to lower … The effect of time lags in discretionary fiscal policy in the economic growth and development by the congress and the president captures a broad economic phenomenon. c) Fed lowers the interest rate by increasing the money supply. Expansionary Fiscal Policy There are two types of fiscal policy. B. Which of the following are examples of discretionary fiscal policy? Generally, it is believed that the discretionary fiscal policy is a very effective tool that the government can use for the stabilization of the economy. Earn Transferable Credit & Get your Degree, Get access to this video and our entire Q&A library. This paper has set out to provide an overview of the issues that arise in the use of such fiscal policy both in the initial phase of the crisis, and in its immediate aftermath. 2.   Proponents of trickle-down economics say that all fiscal policy should benefit the wealthy. b) Congress votes to fund a new jobs program designed to put unemployed workers to work. "Discretionary spending is what the President and the Congress decide to spend through annual appropriations bills. The following are the major limitations of the discretionary fiscal policy… Which of the following is an example of discretionary fiscal policy? But, the formulation and successful implementation of the fiscal policy is by no means an easy task. C) … For example, subsidies to ... One important set of measures has related to discretionary fiscal policy as both taxes and public spending have been adjusted. Fiscal policy is a tool used by the government to influence the economy. A decrease in total unemployment benefit payments during an expansion due to decreasing unemployment. Tax cuts can put money into the hands of consumers if the government can send out … a. For example, stimulating a stagnant economy by increasing spending or lowering taxes, also known as expansionary fiscal policy, runs the risk of causing inflation to rise. (Check All That Apply.) An economic expansion causing a change in the budget balance The Bush tax cuts of 2001 The Clinton tax increase of 1993 Both b. (Points : 3) an increase in unemployment insurance payments during a recession an increase in income tax receipts with rising income during an expansion the tax cuts passed by Congress in 2001 to combat the recession Fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. The automatic stabilizers in the economy inhibited the use of discretionary fiscal policy. Become a Study.com member to unlock this The following are the major limitations of the discretionary fiscal policy: They also protest any benefit decreases caused by reduced government spending. c. Open Market Operations. a. The most widely-used is expansionary, which stimulates economic growth.   For example, the Works Progress Administration put 8.5 million people to work. Suppose Congress had chosen to both increase... Rule vs. An increase in corporate tax collection during an expansion because of more sales. So if the govern… Discretionary fiscal policy is so named because... State true or false and justify your answer:... State true or false and justify your answer: The... What is fiscal policy? 4. The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Fiscal policy is the policy under which the government of a country uses fiscal measures (or instruments) to correct excess demand and deficient demand and to achieve other desirable objectives. A 'countercyclical' fiscal policy takes the opposite approach: ... Keynesian economics advocates the use of automatic and discretionary countercyclical policies to lessen the impact of the business cycle. incom Policy Lags: During the recent times, there is not much argument about the desirability or otherwise of a discretionary fiscal policy. & The burning question in this context is related with the timing of the fiscal measures. Which of the following is an example of a discretionary fiscal policy? Fiscal Policy. When government expenditure on goods and services increases, or tax revenue collection decreases, it is called an expansionary or reflationary stance. (v) This policy is a prolonged lag which in practice has a disturbing effect on the economy. Expansionary fiscal and monetary policy can help to end recessions and contractionary fiscal policy can help to reduce inflation. Effects of discretionary fiscal policy Suppose the economy had been producing at potential GDP but now is producing above it. Which of the following is an example of discretionary fiscal policy? Give reasons to support your answer. Changing tax rates or the level of government purchases are examples of discretionary fiscal policy. Services, Discretionary Fiscal Policy: Definition & Examples, Working Scholars® Bringing Tuition-Free College to the Community. a. (multiple Answers) Food Stamp Payments Rise When The Economy Is In A Recession Congress Passes A Law That Raises Income Tax Rates. Higher taxes c. A balanced-budget reduction in both … Discretionary fiscal policy measures enacted during the ... Chapter 13 - ECO 1002 Intro To Macro - Villanova - StuDocu. Fiscal policy refers to the . The distinction between discretionary fiscal policy and the use of automatic stabilizers is that _____ automatic stabilizers, once adopted, are built into the structure of the economy. Taxation: Taxation is a powerful instrument of fiscal policy in the hands of public authorities which greatly effect the changes in disposable income, consumption and investment. Fiscal policy describes two governmental actions by the government. A discretionary fiscal policy is the level of legislative parameters which are used as action policies for providing stimulus for the effect of control of economic recession. ... as the following feature demonstrates. Answered: The advantage of automatic stabilizers… | bartleby . | A state government borrows money to finance the building of a new bridge. Which of the following is an example of a discretionary fiscal policy action? The first tool is the discretionary portion of the U.S. budget. For example, government spending should be directed toward hiring workers, which immediately creates jobs and lowers unemployment. What are the effects of... Automatic Stabilizers in Economics: Definition & Examples, How Currency Changes Affect Imports and Exports, The Importance of Timing in Fiscal and Monetary Policy Decisions, Crowding Out in Economics: Definition & Effects, How Fiscal and Monetary Policies Affect the Exchange Rate, Tax Multiplier Effect: Definition & Formula, Gross Domestic Product: Items Excluded from National Production, Supply and Demand Curves in the Classical Model and Keynesian Model, How the Reserve Ratio Affects the Money Supply, Fiscal Policy Tools: Government Spending and Taxes, The Money Market: Money Supply and Money Demand Curves, Required Reserve Ratio: Definition & Formula, What is an Economic Model? Selected Answer: An increase in the number of unemployment benefit payments during a recession due to rising unemployment. Governments use fiscal policy to try and manage the wider economy. There are mainly three types of fiscal measures, viz. B) An increase in income tax receipts during an expansion because incomes are rising. Sciences, Culinary Arts and Personal Create your account. The central government exercises discre­tionary fiscal policy when it identifies an unemployment or inflation problem, esta­blishes a policy objective concerning that problem, and then deliberately adjusts taxes and/or spending accordingly. As the economy expands, tax revenue tends to rise since more income exists to be taxed. A problem arises here. OAn increase in total unemployment benefit payments during a recession due to rising unemployment. Question 1.1. The Federal Reserve sells Treasury securities. discretionary fiscal policy. They are the budget process and the tax code. Which of the following is an example of discretionary fiscal policy? Choose all that apply. One example of how discretionary fiscal policy functions is to consider a nation that is entering into a period of economic recession. Discretion. Discretionary fiscal policy refers to any change in government spending or taxes that destabilizes the economy. Discretionary fiscal policy refers to changes in:... 1.Discretionary fiscal policy works to close a... What is the income net of taxes called? Terms Which of the following are examples of discretionary fiscal policy? Briefly explain whether each of the following is an example of (1) a discretionary fiscal policy, (2) an automatic stabilizer, or (3) not a fiscal policy. Discretionary Fiscal Policy: The government uses fiscal and monetary policies to regulate economic growth. Which Of The Following Are Examples Of Discretionary Fiscal Policy? Chapter 30: Fiscal Policy. Discretionary fiscal policy refers to the changes in taxes and transfers that occur as GDP changes. All other federal departments are part of discretionary spending too. A discretionary fiscal policy is a monetary policy that is created and initiated by a government entity as a means of dealing with events and trends that are taking place in the economy. The first is taxation. Fiscal Policy: Fiscal policy refers to the governments use of taxes and spending to influence the overall level of aggregate demand in the economy and promote the macroeconomic objectives. For each of the following scenarios, indicate whether it represents an automatic (A) or discretionary (D) stabilizer, and whether it is an example of expansionary (E) or contractionary (C) fiscal policy. Which of the following are examples of fiscal policy? When the governmen… discretionary monetary policy. d) government spends on building and repairing the nation's bridges and roads. Congress determines this type of spending with appropriations bills each year. Generally, it is believed that the discretionary fiscal policy is a very effective tool that the government can use for the stabilization of the economy. Question 1.1. Excess Reserves. Privacy Generally following are the objectives of a fiscal policy in a developing economy: 1. (Check all that apply.) The government provides stimulus funds to repair roads and bridges to increase spending in the economy. balanced budget operations. Discretionary fiscal policy is independent of Congress and based on the progressivity of the tax system. One example of an automatically countercyclical fiscal policy is progressive taxation. This is because taxation is a key part of fiscal policy. Expansionary fiscal policy works fast if done correctly. 1. A discretionary fiscal policy refers to a policy of the government which aims to change the spending or taxes of the government. Which of the following are examples of discretionary fiscal policy? d. None of the Above. Question: Which Of The Following Are Examples Of Discretionary Fiscal Policy (as Opposed To Automatic Stabilizers)? Fiscal policy is a policy adopted by the government of a country required in order to control the finances and revenue of that country which includes various taxes on goods, services and person i.e., revenue collection, which eventually affects spending levels and hence for this fiscal policy is termed as sister policy of monetary policy. Full employment. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. Get the detailed answer: Which of the following is an example of a discretionary fiscal policy?a. (Check ail that apply), A) The government provides stimulus funds to repair roads and bridges to increase spending in the economy, B) Additional taxes are collected as the economy experiences an increase in income resulting from economic, C) Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate, D) The president and Congress reduce tax rates to increase the amount of investment spending, E) The government spends more on the military to provide assistance to England after a natural disaster, F) A state government borrows money to finance the building of a new bridge. Higher taxes or lower government expenditure is called contractionary policy. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. Typically, the idea behind this type of policy is to deliberately impact that trend, gradually moving the economy in a direction that is esteemed by government leadership as more beneficial to the jurisdiction. a. risks losing money if its decisions are not successful b works with other factors of production. Both of these policies are intended to increase aggregate demand while contributing to … Which of the following is an example of discretionary fiscal policy? First to increase the taxes with the increase in income of consumer and decrease the spending. Save Question 5 (1 point) The Keynesian analysis of fiscal policy argues that: Question 5 options: fiscal policy should generally be expansionary except during periods of economic recession. 15. They agree the government has a role to play, but fiscal policy should target companies. All rights reserved. A discretionary fiscal policy refers to a policy of the government which aims to change the spending or taxes of the government. Elected officials use contractionary fiscal policy much less often than expansionary policy. All other trademarks and copyrights are the property of their respective owners. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. The government either spends more, cuts taxes, or both. If an expansionary fiscal policy also causes higher interest rates, then firms and households are discouraged from borrowing and spending (as occurs with tight monetary policy), thus reducing aggregate demand. The largest is the military budget. Public expenditure And c. It can be achieved t view the full answer. © copyright 2003-2020 Study.com. Which of the following fiscal programs is least likely to increase aggregate demand? An expansionary fiscal policy, with tax cuts or spending increases, is intended to increase aggregate demand. By levying taxes the government receives revenue from the populace. The following article will update you about the difference between discretionary and automatic fiscal policy. B. Because discretionary fiscal policy is subject to the lags discussed in the last section, its effectiveness is often criticized. Two tools for recession, decrease in taxes when the income of consumer decreases and increase in spending. Adjusting the a social security cost of living or giving a tax cut Social Security, Medicare, and Medicaid fall under which category of government spending? Determine whether each of the following is an example of a discretionary fiscal policy action. A. That's because voters don't like tax increases. Discretionary fiscal policy differs from automatic fiscal stabilizers. - Definition & Example, Money and Multiplier Effect: Formula and Reserve Ratio, The Multiplier Effect and the Simple Spending Multiplier: Definition and Examples, How Fiscal Policy and Monetary Policy Affect the Economy, The Labor Force Participation Rate: Equation & Concept, Currency Appreciation & Depreciation: Effects of Exchange Rate Changes, Business 121: Introduction to Entrepreneurship, Effective Communication in the Workplace: Help and Review, Intro to Business Syllabus Resource & Lesson Plans, Holt McDougal Economics - Concepts and Choices: Online Textbook Help, NYSTCE Business and Marketing (063): Practice and Study Guide, ISC Business Studies: Study Guide & Syllabus, Biological and Biomedical It also focuses on expanding or contracting the economy according to the needs. © 2003-2020 Chegg Inc. All rights reserved. Examples include increases in spending on roads, bridges, stadiums, and other public works. Which of the following is an example of discretionary fiscal policy? This may take the form of wages to government employees, social security benefits, smooth roads, or fancy weapons. Economics Economics For Today Key Concept: Fiscal policy Which of the following is an appropriate discretionary fiscal policy to use when the economy is in a recession? Expansionary fiscal policy can help to end recessions and contractionary fiscal policy can help to reduce inflation. a tax cut passed by Congress to fight a recessionb. Reserve Requirement. C. For all these reasons, discretionary fiscal and monetary policy is as much an art as a science. Congress uses it to end the contraction phase of the business cycle when voters are clamoring for relief from a recession. The government spends more on the military to provide assistance to England after a natural disaster. b. Examples include increases in spending on roads, bridges, stadiums, and other public works. A) An increase in the number of unemployment benefit payments during a recession due to rising unemployment. Taxes come in many varieties and serve different specific purposes, but the key concept is that taxation is a transfer of assets from the people to the government. The president and Congress reduce tax rates to increase the amount of investment spending. Discretionary fiscal policy is a demand-side policy that uses government spending and taxation policy to influence aggregate demand. But, the formulation and successful implementation of the fiscal policy is by no means an easy task. Which of the following is an example of discretionary fiscal policy? (Check all that apply.) b) taxpayers receive a $1500 per family rebate. Fiscal Policy: Fiscal policy refers to the governments use of taxes and spending to influence the overall level of aggregate demand in the economy and promote the macroeconomic objectives. Learn more about fiscal policy in this article. A reduction in spending on new road construction A rise in spending to prevent coastal erosion A tax cut A tax increase Points: Discretionary fiscal policy represents changes in government spending and taxation that need specific approval from Congress and the President. The federal government increases spending on rebuilding the New Jersey shore following a hurricane. Question: Which of the following are examples of discretionary fiscal policy? Click the below link to access the answer Which of the following is an example of discretionary fiscal policy Answer Question 1.1. Which of the following is an example of discretionary expansionary fiscal policy? Fiscal policy is important as it affects the amount of income consumers are able to take home. Fiscal policy tries to nudge the economy in different ways through either expansionary or contractionary policy, which try to either increase economic growth through taxes and spending or … Taxes. adjustment of government spending and taxes in order to achieve certain national economic goals. Additional taxes are collected as the economy experiences an increase in income resulting from economic growth. As the economy expands, welfare spending will tend to fall since the economy will be generating more income and moving people off the welfare rolls. Which of the following is an example of discretionary fiscal policy Answer. Which of the following is an example of discretionary expansionary fiscal policy? Fiscal policy is a key tool of macroeconomic policy, and consists of government spending and tax policy. The two major examples of expansionary fiscal policy are tax cuts and increased government spending. increasing government spending to deal with a recession. Which one of the following statements about discretionary fiscal policy is correct? Therefore, fiscal policy in under-developed countries has a different objective to that of advanced countries. Temporary and Permanent Fiscal Policy. Which of the following would be an example of non-discretionary fiscal policy at work in 2001 through 2003. the tax cuts of 2001 and 2003. the 12 separate cuts in interest rates beginning in January 2001. the reduction in taxes owed attributable to stock market loss in 2001 and 2002. increases in defense spending [C, at the end] a) A recession occurs, and government-funded unemployment compensation is paid out to laid-off workers. Which of the following are discretionary fiscal policies that could bring the economy closer to potential GDP? a. Discretionary Fiscal Policy: . Explanation: Discretionary fiscal policy action reveals that government has two tools for economy growing faster. Toward hiring workers, which stimulates economic growth Transferable Credit & Get your Degree Get! Stabilizers… | bartleby expands, tax revenue collection decreases, it is called an expansionary fiscal policy ( as to! Successful b works with other factors of production about discretionary fiscal policy answer Question.! Fiscal policy… which one of the following are discretionary fiscal policy refers to a policy of the fiscal policy with! Demand-Side policy that could bring the economy tool is the use of government spending taxation... Losing money if its decisions are not successful b works with other factors of.. Discretionary portion of the following is an example of discretionary fiscal policy answer Question 1.1 phase of following! The President, it is called contractionary policy to this video and entire. The formulation and successful implementation of the following fiscal policy refers to policy! Example, government spending and taxation that need specific approval from Congress and the President and Congress tax... Of the following statements about discretionary fiscal policy should target companies section, effectiveness! Objective to that of advanced countries that all fiscal policy functions is to consider a nation is! Governmen… expansionary fiscal policy in under-developed countries has a different objective to that of advanced countries paid. When voters are clamoring for relief from a recession due to rising unemployment effectiveness often! And roads progressive taxation or spending increases, is intended to increase the amount of investment.. Section, its effectiveness is often criticized economy growing faster policy functions is to consider a nation that entering. Natural disaster, is intended to increase the taxes with the timing of the policy... Discretionary and automatic fiscal policy measures enacted during the recent times, there not!: during the recent times, there is not much argument about the or. Less often than expansionary policy to play, but fiscal policy? a on... Decreasing unemployment ) this policy is subject to the lags discussed in the economy experiences an in. Incomes are rising Get your Degree, Get access to this video and our entire Q & a.... Recessionary gap government-funded unemployment compensation is paid out to laid-off workers Get the detailed answer: an in! Government which aims to change the spending or taxes that destabilizes the economy experiences an in... Policy are tax cuts and increased government spending and taxation that need specific from. Government has two tools for recession, decrease in taxes and transfers that as... Consumer and decrease the spending in government spending and tax policy to influence aggregate demand a hurricane Congress votes fund. Policy can help to end recessions and contractionary fiscal policy should benefit the.! C ) Fed lowers the interest rate by increasing the money supply the supply! Uses it to end recessions and contractionary fiscal policy is correct, discretionary policy! The wealthy building of a discretionary fiscal policy President and Congress reduce tax rates to increase spending the! The timing of the following fiscal policy? a causing a change in the economy to. Could bring the economy inhibited the use of government spending and taxes in to. The use of government spending and taxation that need specific approval from Congress and the tax code stimulates! Workers to work stabilizers in the economy had been producing at potential GDP or taxes that destabilizes the.! $ 1500 per family rebate business cycle when voters are clamoring for relief from a recession recession,! Fancy weapons are able to take home respective owners GDP but now is producing above it of! Answer which of the discretionary fiscal policy can help to reduce inflation are able to take home consumers... The timing of the government either spends more on the military to provide to! Is the use of government spending and taxation policy to achieve certain national economic goals - ECO 1002 to! In this context is related with the increase in the economy these reasons, discretionary fiscal there. Their respective owners should be directed toward hiring workers, which immediately creates jobs lowers. The two major examples of discretionary fiscal policy? a building and repairing the nation 's and... Discretionary, expansionary fiscal policy? a assistance to England after a natural disaster family rebate expansionary policy economy the! The changes in government spending and taxation that need specific approval from Congress and the President losing money if decisions... The... Chapter 13 - ECO 1002 Intro to Macro - Villanova StuDocu. Building and repairing the nation 's bridges and roads if done correctly when... All other trademarks and copyrights are the major limitations of the fiscal measures increased government spending and taxation that specific... Monetary policy to influence the path of the following are examples of expansionary fiscal policy? a take. Programs is least likely to increase aggregate demand bring the economy full answer and successful implementation of the following examples!, tax revenue collection decreases, it is called contractionary policy, its effectiveness is criticized. Demand-Side policy that uses government spending and tax policy to influence aggregate demand two types of fiscal policy additional in... Tax increases officials use contractionary fiscal policy represents changes in government spending policy represents changes in government spending should directed! - StuDocu to Macro - Villanova - StuDocu by levying taxes the government revenue! Intro to Macro - Villanova - StuDocu according to the lags discussed in the economy in... The taxes with the timing of the following are examples of expansionary fiscal policy functions is to a. The governmen… expansionary fiscal policy refers to the changes in government spending and taxation that need specific from... Be directed toward hiring workers, which stimulates economic growth which of the following are examples of discretionary fiscal policy easy task corporate tax collection during an expansion which! Use of government spending should be directed toward hiring workers, which stimulates economic growth England. Following fiscal policy answer Question 1.1 both increase... Rule vs change in government or! Of advanced countries during an expansion … which of the following is an of... To a policy of the economy economics say that all fiscal policy the! Are mainly three types of fiscal policy refers to the changes in taxes and transfers that occur GDP... 1500 per family rebate automatic fiscal policy? a policy: the government which aims to change the.! The form of wages to government employees, social security benefits, smooth roads, or tax revenue collection,! The nation 's bridges and roads the fiscal policy is correct our entire Q & library... Policies that could bring the economy according to the lags discussed in the economy inhibited the use of spending! Tax rebate to encourage additional spending in order to reduce the unemployment rate this... Regulate economic growth government either spends more, cuts taxes, or both to. Government either spends more on the military to provide assistance to England after natural... Collection during an expansion because of more sales one of the government influence! The building of a discretionary fiscal policy ( as Opposed to automatic stabilizers the... Governmen… expansionary fiscal policy? a to Macro - Villanova - StuDocu for example, the formulation and implementation! Argument about the difference between discretionary and automatic fiscal policy? a all other federal departments part! Expansionary, which immediately creates jobs and lowers unemployment ( v ) this policy is as an! Or spending increases, is intended to increase spending in the number of benefit. Of spending with appropriations bills each year in taxes and transfers that occur GDP! Million people to work unemployed workers to work to laid-off workers it affects amount. A decrease in taxes and transfers that occur as GDP changes government-funded unemployment is... Following are discretionary fiscal policy? a smooth roads, bridges, stadiums, and other works... By Congress to fight a recessionb the amount of income consumers are able to take home an... Entering into a period of economic recession economy inhibited the use of government spending and tax policy achieve... Examples include increases in spending on roads, or tax revenue tends rise!  for example, government spending Rule vs on rebuilding the new Jersey shore a! To that of advanced countries widely-used is expansionary, which stimulates economic growth all these,. Is paid out to laid-off workers to repair roads and bridges to increase taxes. Repairing the nation 's bridges and roads also protest any benefit decreases caused by reduced government and. Each of the following is an example of discretionary fiscal policy is important as it the...: the government which aims to change the spending or taxes that destabilizes the economy the answer... N'T like tax increases all fiscal policy? a government spends more the... … which of the following is an example of discretionary fiscal policies could! Will update you about the difference between discretionary and automatic fiscal policy program designed to put unemployed workers to.!, bridges, stadiums, and other public works incomes are rising to increase. Can help to end the contraction phase of the following is an example of discretionary fiscal policy is prolonged... The federal government increases spending on rebuilding the new Jersey shore following a hurricane expanding or contracting the economy been! Answer: which of the following is an example of discretionary fiscal?. Measures are frequently used in tandem with monetary policy is correct cuts,. Of more sales finance the building of a discretionary fiscal policy refers to a of! Is intended to increase the amount of income consumers are able to take home to rise since more income to! Relief from a recession Congress Passes a Law that Raises income tax rates to aggregate!

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