Discretionary fiscal policy uses two tools. They are the budget process and the tax code. The first tool is the discretionary portion of the U.S. budget.Congress determines this type of spending with appropriations bills each year.
Since, Aggregate Demand = Consumption + Investment + Government Spending + Net Exports, an Expansionary Policy will shift Aggregate Demand to the right.This kind of policy involves decreasing taxes and/or increasing government spending. An Expansionary Discretionary Fiscal Policy is typically used in a recession.
President Franklin D. Roosevelt used expansionary policy to end the Great Depression. At first, it worked. But then FDR reduced New Deal spending to keep the budget balanced. That allowed the Depression to reappear in 1932. Roosevelt returned to expansionary fiscal policy to gear up for World War II.
Fiscal Policy= change in gov't expenditures (spending) and taxation in order to achieve macroeconomic goals, example= stable prices, low unemployment, high growth, etc. This is used to stimulate a slow economy or slow down an economy that is moving too fast. -Expansionary= Increase in government spending/ decrease in taxes. Used when economy is in a recession.
Discretionary fiscal policy is a policy action aimed at stabilizing the business cycle. Examples include changes in government spending and changes in taxes levied. Nondiscretionary fiscal policy is automatic which include the automatic stabilizers of increasing net taxes in an expansion and decreasing net taxes during a recession.
Chapter 20: Fiscal Policy study guide by jefferycody922 includes 13 questions covering vocabulary, terms and more. ... discretionary fiscal policy. ... expansionary fiscal policy. involves increasing gov't spending, increasing transfer payments, or decreasing taxes to increase AD to expand output and the economy.
Fiscal Policy. Fiscal policy is the use of government spending and tax policy to influence the path of the economy over time. Automatic stabilizers, which we learned about in the last section, are a passive type of fiscal policy, since once the system is set up, Congress need not take any further action.On the other hand, discretionary fiscal policy is an active fiscal policy that uses ...
Expansionary and contractionary fiscal policies raise and lower money supply, respectively, into the economy. In this Buzzle article, you will come across the pros and cons of using expansionary and contractionary fiscal policy.
The net effect of a nondiscretionary fiscal policy is to create deficits during recessions and surpluses when the economy expands very quickly. Unlike nondiscretionary fiscal policies, discretionary fiscal policies require explicit government intervention. Discretionary fiscal strategies are implemented through the government budgetary process.
Expansionary policy is a useful tool for managing low-growth periods in the business cycle, but it also comes with risks. Economists must know when to expand the money supply to avoid causing side ...