When an economy is in a recession, discretionary fiscal policy would call for ________, and the automatic stabilizers would ____________.

Question

Quizplus · Accepted Answer

During a recession, the government may implement discretionary fiscal policy to increase the overall demand in the economy. This can be done by lowering tax rates so that consumers and businesses have more disposable income to spend, thus increasing their spending and stimulating the economy. However, lowering tax rates will also lower tax revenues, which may not be feasible in the long run. On the other hand, automatic stabilizers like unemployment benefits and progressive tax rates will automatically increase government spending and decrease taxes during a recession, helping to stabilize the economy.

When an Economy Is in a Recession, Discretionary Fiscal Policy