The difference between automatic fiscal policy and discretionary fiscal policy is that

Question

Quizplus · Accepted Answer

Automatic fiscal policy refers to changes in government spending or taxation that occur automatically without any action required by policymakers. For example, when a recession causes a decline in economic output and tax revenues, certain government programs such as unemployment insurance and food stamps automatically increase spending, providing a stabilizing effect on the economy.

Discretionary fiscal policy, on the other hand, refers to deliberate changes in government spending or taxation that are initiated by policymakers in response to economic conditions. For example, Congress might pass a law to increase government spending on infrastructure projects during a recession, or cut taxes to stimulate consumer spending.

Therefore, the key difference between automatic and discretionary fiscal policy is that the former occurs automatically without any action taken by policymakers, while the latter requires specific actions to be taken by Congress or the President. Choice B is the best answer as it correctly identifies that Congress must pass laws to implement discretionary fiscal policy.

The Difference Between Automatic Fiscal Policy and Discretionary Fiscal Policy