Fiscal policy measures in the current economy.
Explanation of Solution
For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like
When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.
These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate
Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.
Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.
Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue
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Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning