"European Economic Recovery Plan" "The European Commission urged EU governments to jointly combat the economic slowdown with 200 billion euros ($256 billion) in spending and tax cuts to boost growth and consumer and business confidence." The plan "...would see the 27 EU governments spend 1.5 percent of the bloc's gross domestic product to halt the slowdown that has already pushed some European nations into recession."
www.iht.com, 11/26/2008
Which of the following describe the EU's plan?
i. It is discretionary fiscal policy
iI. It will generate a cyclical surplus.

Question

Quizplus · Accepted Answer

The EU's plan involves government intervention through spending and tax cuts to stimulate the economy, which is an example of discretionary fiscal policy. It is not aimed at generating a cyclical surplus, which occurs when the economy is at its potential output, but rather at combating a slowdown.

"European Economic Recovery Plan" "The European Commission Urged EU Governments