Which of the following is an example of discretionary fiscal policy during a recession?
A) An increase in tax rates to increase revenue
B) A decrease in transfer payments to unemployed workers
C) A temporary tax cut to boost consumption
D) A decrease in money supply to lower the federal funds rate

Question

Quizplus · Accepted Answer

A temporary tax cut to boost consumption is an example of discretionary fiscal policy during a recession. By cutting taxes, the government can increase disposable income, which in turn can increase consumption, stimulate aggregate demand, and ultimately lead to economic growth. This policy can be used during a recession to increase demand and help pull the economy out of the downturn. Options A and B are examples of contractionary fiscal policies, which would exacerbate a recession. Option D is an example of monetary policy, not fiscal policy.

Which of the Following Is an Example of Discretionary Fiscal