With the economy booming, the government starts to worry about the increasing rate of inflation, and decides to cut its spending on highway maintenance and defer it to sometime in the future. This is an example of:

Question

Quizplus · Accepted Answer

This is an example of discretionary fiscal policy because the government is making a conscious decision to reduce spending in response to the concern about inflation. Automatic stabilizers refer to policy measures that automatically adjust in response to economic conditions, such as unemployment benefits increasing during a recession. Expansionary fiscal policy involves increasing government spending or reducing taxes to stimulate economic growth, which is not the case here.

With the Economy Booming, the Government Starts to Worry About