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Q. 7

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Economics Today
Found in: Page 296

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Short Answer

Determine whether each of the following is an example of discretionary fiscal policy action.

a. A recession occurs, and government-funded unemployment compensation is paid to laid-off workers.

b. Congress votes to fund a new jobs program designed to pat unemployed workers to work.

c. The Federal Reserve decides to reduce the quantity of money in circulation in an effort to slow inflation.

d. Under powers authorized by an act of Congress, the president decides to authorize an emergency release of funds for spending programs intended to head off economic crises.

a) This situation is not a suitable example of discretionary policy action

b) This situation is an example of discretionary policy action

c) This situation is not a suitable example of discretionary policy action

d) This situation is an example of discretionary policy action

See the step by step solution

Step by Step Solution

Step 1 :Introduction 

The given is the situation of the discretionary Fiscal policy actions

The objective is to determine the situations are the example of the policy actions

Step 2 : Explanation (part a)

(a)

No, this is not an instance of discretionary budgetary policy. This is due to the fact that unemployment compensation is a special automatic fiscal policy that is provided to laid-off workers.

And, without government intervention, such automatic stabilizers will produce shifts in aggregate demand.

Step 2 : (Part b)

(b) Yes, this is an example of discretionary fiscal policy because the government took voluntary action to pursue a new economic goal of providing jobs for unemployed persons.

Step 3 : Explanation (part c)

(c) This is not an example of fiscal policy with discretion. Because such measures of an increase or decrease in the quantity of money in circulation are referred to as monetary policy rather than fiscal policy, they are referred to as such.

When the economy is hit by inflation, the Federal Reserve reduces the amount of money in circulation to combat it.

Step 4 : Explanation (part d)

(d) This is an example of discretionary fiscal policy since the president used discretionary authority to allow the flow of emergency money for the purpose of spending scheduled projects to avoid economic emergencies.

As a result, it contributes to the achievement of national economic objectives.

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