Discretionary fiscal policy:
A) can magnify the automatic stabilization effects of existing policies.
B) only magnifies the automatic stabilizer effects of policies that stimulate the economy.
C) often counters the effect of automatic stabilizers that already exist.
D) None of these are true.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy can be used to supplement or amplify the effects of automatic stabilizers, such as changes in tax revenues or transfer payments, to further stabilize the economy. It can be used to counteract or reinforce the direction of the economy, depending on the situation. Therefore, option A is correct. Options B and C are incorrect as they are too narrow in scope and do not reflect the full range of potential effects of discretionary fiscal policy. Option D is incorrect as option A is true.

Discretionary Fiscal Policy