Question

Classify each of the following as discretionary or automatic fiscal policy (or neither)

A decrease in tax receipts in a recession

Additional expenditure to upgrade highways

An increase in the public education budget

A purchase of $10 Million to treat AIDS sufferers in a foreign country.

A cut in funding for national defense during an expansion

Answer 1

The difference between discretionary fiscal policy and automatic stabilizer is that discretionary policy requires government direct intervention through the policy making and passing the proposal through the parliament. automatic stabilizers to not require government intervention and their work on their own

1) automatic stabilizer. when there is a recession there is a decline in disposable income and a consequent decline in tax collection. There is no direct involvement of the government

2) discretionary policy. this is because government has to make a proposal to the parliament for passing a budget for highways upgradation.

3) neither because there is no recession or expansion

4) neither.

5) discretionary because reduction in National defence funding requires government orders.