Which of the following illustrates the use of discretionary fiscal policy?
A) The Bank of Canada reduces its bank rate.
B) Government appropriates $500 million to help the needy, and the appropriation is financed by a tax on wealth.
C) Income tax receipts are smaller because of a decline in real GDP during a recession.
D) Parliament passes a bill authorizing $2 billion in additional spending when it receives news of a deepening recession.

Question

Which of the following illustrates the use of discretionary fiscal policy?  
A) The Bank of Canada reduces its bank rate. 
B) Government appropriates $500 million to help the needy, and the appropriation is financed by a tax on wealth. 
C) Income tax receipts are smaller because of a decline in real GDP during a recession. 
D) Parliament passes a bill authorizing $2 billion in additional spending when it receives news of a deepening recession.

Quizplus · Accepted Answer

Discretionary fiscal policy refers to deliberate changes in government spending and taxation to address economic issues. The passing of a bill authorizing $2 billion in additional spending to address a deepening recession is an example of discretionary fiscal policy. A reduction in bank rate by the Bank of Canada is an example of monetary policy. Government appropriating funds and financing it through taxation is also an example of fiscal policy but does not necessarily indicate discretion. Smaller income tax receipts due to a decline in real GDP is automatic fiscal policy, not discretionary, as there is no deliberate action taken by the government.

Which of the Following Illustrates the Use of Discretionary Fiscal