What is an example of discretionary fiscal policy?
Discretionary fiscal policy represents changes in government spending and taxation that need specific approval from Congress and the President. Examples include increases in spending on roads, bridges, stadiums, and other public works.
What is discretionary policy in economics?
From Wikipedia, the free encyclopedia. In macroeconomics, discretionary policy is an economic policy based on the ad hoc judgment of policymakers as opposed to policy set by predetermined rules.
What is the main problem with discretionary fiscal policy?
Given the uncertainties over interest rate effects, time lags (implementation lag, legislative lag, and recognition lag), temporary and permanent policies, and unpredictable political behavior, many economists and knowledgeable policymakers have concluded that discretionary fiscal policy is a blunt instrument and …
What is discretionary policy action?
Discretionary fiscal policy is the term used to describe actions made by the government. These changes occur on a year by year basis and are used to reflect the current economic status. If the economy needs to grow, taxes might be lowered so that people spend more money, which is expansionary fiscal policy.
What are two types of discretionary fiscal policy?
The government has two types of discretionary fiscal policy options—expansionary and contractionary. Each type of fiscal policy is used during different phases of the economic cycle to stop or slow recessions and booms.
What is the difference between automatic Stabilisers and discretionary fiscal policy?
Automatic stabilizers are limited in that they focus on managing the aggregate demand of a country. Discretionary policies can target other, specific areas of the economy. Automatic stabilizers exist prior to economic booms and busts. Discretionary policies are enacted in response to changes in the economy.
When an economy’s output is?
Potential output is the maximum amount of goods and services an economy can turn out when it is most efficient—that is, at full capacity. Often, potential output is referred to as the production capacity of the economy. Just as GDP can rise or fall, the output gap can go in two directions: positive and negative.
Is discretionary policy good or bad?
What are the limitations of discretionary policy?
The following are the major limitations of the discretionary fiscal policy: (1) Information Lag: The government should have adequate and authentic data that is required to change taxes and government spending. It takes a long time to collect, classify, tabulate and analyze the data.
Why is it called discretionary fiscal policy?
Discretionary fiscal policy refers to government policy that alters government spending or taxes. Its purpose is to expand or shrink the economy as needed. For instance, when the UK government cut the VAT in 2009, this was intended to produce a boost in spending.
What are discretionary Stabilisers?
Discretionary stabilisers are changes to government revenue and expenditure to directly influence the budget outcome.
What are discretionary stabilizers?
What is discretionary fiscal policy?
Discretionary fiscal policy refers to government policy that alters government spending or taxes. Its purpose is to expand or shrink the economy as needed. For instance, when the UK government cut the VAT in 2009, this was intended to produce a boost in spending.
How does contractionary discretionary policy affect aggregate demand?
A contractionary discretionary policy will lower government spending and/or increase taxation. This policy will shift aggregate demand to the left (this denotes a decrease).
What is macroeconomic policy?
Macroeconomic policy is a government plan and action to influence the economy as a whole. The policy is to achieve macroeconomic targets such as: Macroeconomic policy differs from the microeconomic policy.
How does contractionary fiscal policy affect the economy?
Contractionary fiscal policy slows growth, which includes job growth. With fewer jobs, and higher taxes, both families and businesses are left with less income available for spending. With this decreased demand, then, the economy’s growth is slowed.