![]() Briefly explain whether each of the following is (1) an example of a discretionary fiscal policy, (2) an example of an automatic stabilizer, or (3) not an example of fiscal policy. Not part of fiscal policy, but is instead an example of monetary policy. The Federal Reserve sells Treasury securities. ![]() ![]() Not part of fiscal policy because the action is not intended to affect the national economy. The federal government increases spending on rebuilding the New Jersey shore following a hurricane. Briefly explain whether each of the following is (1) an example of a discretionary fiscal policy, (2) an example of an automatic stabilizer, or (3) not an example of fiscal policy.Ī. During expansions unemployment insurance payments decrease and income taxes increase. Two examples of automatic stabilizers are unemployment insurance payments, which increase during a recession as more workers become unemployed, and income taxes, which decrease during a recession as incomes fall. Automatic stabilizers refer to government spending and taxes that automatically increase or decrease along with the business cycle. Automatic stabilizers bypass this difficulty by doing exactly what their name implies." What are automatic stabilizers? Name two examples of automatic stabilizers and explain how they can reduce the severity of a recession. Economist Mark Thomas wrote, "One of the difficulties in using fiscal policy to combat recessions is getting Congress to agree on what measures to implement. The president and Congress are responsible for fiscal policy. Tax multiplier Change in equi real GDP / Change in taxes (negative #) Change is gov spending = AD1 -> AD2 Change in real GDP = AD1 -> AD3 What is fiscal policy? Who is responsible for fiscal policy? Fiscal policy refers to changes in federal government purchases and taxes that are intended to achieve macroeconomic policy objectives.
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