Which of the following best illustrates the use of discretionary fiscal policy?
A) Congress providing $1 billion in relief aid for hurricane victims
B) Congress appropriating $400 million to help the needy and the appropriation being financed by a tax on wealth
C) income tax receipts being smaller because of a decline in real GDP during a recession
D) the Federal Reserve tightening credit when it receives news of accelerating inflation
E) Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

Question

Quizplus · Accepted Answer

Discretionary fiscal policy refers to deliberate changes in government spending or taxation meant to affect the economy. Congress authorizing $2 billion in additional spending when it receives news of a deepening recession is an example of discretionary fiscal policy. Congress is making a deliberate decision to increase spending in response to economic conditions. A, B, and C are examples of automatic stabilizers or changes in government spending or taxation that occur automatically as a result of changes in economic conditions. D is an example of monetary policy, which is the responsibility of the Federal Reserve, not Congress.

Which of the Following Best Illustrates the Use of Discretionary