An example of automatic fiscal policy is
A)Congress passing a tax rate reduction package.
B)the federal government expanding spending at the Department of Education.
C)expenditure for unemployment compensation increasing as economic growth slows.
D)the Federal Reserve reducing interest rates as economic growth slows.
E)a change in taxes that has no multiplier effect.

Question

Quizplus · Accepted Answer

Automatic fiscal policy refers to government spending and taxation policies that automatically adjust in response to changes in the state of the economy without the need for explicit authorization by government officials. Option C, an increase in unemployment compensation expenditure as economic growth slows, is an example of automatic fiscal policy as it increases spending during a recession without requiring Congress to explicitly authorize the spending. Options A, B, and D are all examples of discretionary fiscal policy where Congress or the Federal Reserve must take specific actions to change tax rates, spending in certain departments, or interest rates. Option E is not relevant to automatic or discretionary fiscal policy.

An Example of Automatic Fiscal Policy Is