Final answer:
Procyclical fiscal policies increase cyclical fluctuations in the economy by amplifying natural economic swings. They contrast with countercyclical policies, which aim to smooth out such fluctuations but can be challenging to implement due to political realities.
Step-by-step explanation:
The correct answer to the student's question is D. increase cyclical fluctuations in the economy. Procyclical fiscal policies tend to amplify the natural swings in the business cycle rather than smooth them out. When the economy is booming, procyclical policies might involve increasing government spending or cutting taxes, which could overheat an already strong economy. Conversely, when the economy is in a downturn, procyclical policies might involve cutting government spending or increasing taxes, which can worsen a recession.
In contrast, countercyclical fiscal policies are designed to be counter to the current economic trend. During a slowdown, countercyclical policies would involve increasing government spending or cutting taxes to stimulate the economy. During a period of economic expansion, it would mean raising taxes or cutting spending to cool off the economy and prevent inflation. Political Realities and Discretionary Fiscal Policy highlight the challenge in implementing effective countercyclical policies, as they often run contrary to political instincts and the desire for immediate results.