Discretionary fiscal policy is best described as
A)a deliberate attempt to cause the economy to move to full employment and price stability more quickly than it might otherwise.
B)a deliberate attempt to improve the functioning of free markets.
C)an automatic change in income transfer payments to keep the economy at full employment.
D)the design of a tax system that automatically stabilizes economic activity over time.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy involves deliberate actions taken by the government to influence the level of economic activity. These actions aim to move the economy towards full employment and price stability more quickly than it might happen naturally. This can be achieved through changes in government spending or tax policies that directly affect aggregate demand in the economy.

B, C, and D are incorrect:
B) Discretionary fiscal policy is not intended to improve the functioning of free markets, but rather to influence the level of economic activity.
C) Automatic changes in income transfer payments are an example of automatic stabilizers, not discretionary fiscal policy.
D) The design of a tax system that automatically stabilizes economic activity is also an example of automatic stabilizers, not discretionary fiscal policy.

Discretionary Fiscal Policy Is Best Described as