Question 1

A political leader suggesting that an economic downturn will be cushioned automatically is referring to

Accepted Answer

Nondiscretionary Fiscal Policy refers to automatic stabilizers in the economy which adjust on their own without the need for government intervention. These include programs such as unemployment insurance and progressive tax systems which are designed to mitigate the impact of economic downturns.

Question 2

A political leader suggesting that an economic downturn will be better dealt with by allowing the built-in stabilizers to work is referring to

Accepted Answer

Built-in stabilizers are part of the non-discretionary fiscal policy, which includes automatic adjustments in government spending and taxation in response to economic conditions. These stabilizers provide economic stability during downturns without the need for discretionary policy changes, such as tax policy changes or monetary policy adjustments.

Question 3

A political leader suggesting that the country "stay the course" in the face of an economic downturn because things will be potentially made worse if tax and spending policies are adopted, is, by implication suggesting ____ is better.

Accepted Answer

"Stay the course" suggests continuing current policies rather than making changes. Both discretionary fiscal policy and regulatory changes involve making policy changes and therefore would not be implied as better options. Trade policy may or may not be relevant to the economic downturn, but is not mentioned specifically in the given statement. Nondiscretionary fiscal policy, which refers to automatic stabilizers such as unemployment insurance and progressive income taxes, would be consistent with staying the course and not making any new policy changes.

Question 4

A political leader suggesting that an economic downturn will be cushioned by nondiscretionary fiscal policy is referring to

Accepted Answer

Nondiscretionary fiscal policy, also known as automatic stabilizers, includes mechanisms like a progressive income tax system and welfare programs that automatically adjust to economic changes without the need for new government action, helping to cushion economic downturns.

Question 5

A political leader suggesting that an economic downturn will be better dealt with actively changing tax and spending policies is advocating

Accepted Answer

Discretionary fiscal policy involves government intervention in the economy through changes in taxes, spending, or both. When a political leader suggests actively changing tax and spending policies to manage an economic downturn, they are advocating for discretionary fiscal policy. Monetary policy, on the other hand, involves changes in the money supply and interest rates by a central bank, while nondiscretionary fiscal policy refers to automatic stabilizers like welfare programs and progressive income taxes that kick in during an economic downturn without needing new legislation. Regulatory changes may also impact the economy, but they are not directly related to managing an economic downturn through tax and spending policies.

Question 6

A political leader suggesting that an economic downturn will be cushioned automatically is referring to the automatic actions resulting from

Accepted Answer

A progressive income tax and a welfare state are examples of automatic stabilizers in an economy. These mechanisms work without the need for new government intervention, helping to moderate the fluctuations of the business cycle by automatically increasing government spending or decreasing tax revenue as economic conditions worsen.

Quiz 9: Fiscal Policy