With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to the future. This is an example of:

Question

Quizplus · Accepted Answer

This is an example of discretionary fiscal policy because the government is making a deliberate choice to decrease spending in order to combat inflation. Automatic stabilizers are measures that automatically help stabilize the economy without explicit action by policymakers. Expansionary fiscal policy would involve increasing government spending or decreasing taxes in order to stimulate the economy, which is the opposite of what is happening in this scenario.

With the Economy Booming, the Government Starts to Worry About