Question

Indicate whether each of the following is an example of an automatic stabilizer or discretionary fiscal policy.

1. The government increases the top income tax bracket to 35%.
2. The tax rate paid by an individual falls from 20% to 15% when his pay is reduced during a recession.
3. A person qualifies for unemployment compensation when she loses her job during a recession.
4. The government votes to increase military spending.
5. The government collects more tax revenue during an expansion because the stock market is booming.

Answer 1

Answer:1. Discretionary fiscal policy.

2. Automatic stabilizer.

3 Automatic stabilizer

4. Discretionary fiscal policy

5. Discretionary fiscal policy

Step-by-step explanation:

Automatic stabilizer are already existing Government legislation built in to stabilize the economy without direct goverments intervention. E.g the progressive tax system which takes more tax as income increases and less tax as it decreases, the bottom line is that this policy already exists in the Government system in controlling the economy.

Discretionary fiscal policy are new and direct Goverments policy to control the economy like new spending, new tax etc.