Question

Most of the government budget is mandatory spending through programs like Medicare and Social Security, and much of the rest is politically difficult to alter. Because of this:

A. fiscal policy is always undertaken only when there is a national crisis that motivates voters to seek change.
B. fiscal policy that involves raising taxes is more likely to be implemented than fiscal policy that involves borrowing money.
C. the amount of spending is unlikely to be implemented as economists suggest.
D. most spending is geared to perform as an automatic stabilizer, so that Congress is in fact largely irrelevant when it comes to providing a fiscal response to a recession.

Answer 1

Option D is correct; most government spending functions as an automatic stabilizer, allowing fiscal policy to adjust to economic conditions without needing direct Congressional action, thus reducing the reliance on discretionary fiscal policy.

Step-by-step explanation:

The question addresses the role and limitations of fiscal policy in government budgeting, particularly in the context of mandatory spending on programs like Medicare and Social Security, and the challenges of implementing changes. Option D suggests that most spending acts as an automatic stabilizer, allowing fiscal policy to respond to economic conditions without direct Congressional intervention.

This reflects the fact that in a recession, for instance, there are automatic increases in government spending and reductions in tax revenue due to a higher demand for social services and lower income levels, respectively. Conversely, in a boom, tax revenues increase and spending on social services falls. Because of these built-in stabilizers, the need for discretionary fiscal policy is reduced, making it less vital for Congress to enact frequent fiscal changes in response to economic fluctuations.