Which of the following are examples of discretionary fiscal policy? (Check all t

Question

Which of the following are examples of discretionary fiscal policy? (Check all that apply.) A. The president and Congress reduce tax rates to increase the amount of investment spending. B. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. c. The govenment spends more on the military to provide assistance to England after a natural disaster D. A state government borrows money to finance the building of a new bridge. E. Additional taxes are collected as the economy experiences an increase in income resulting from economic growth F. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate

Explanation / Answer

1. A , B and E

2. Decrease Taxes

As to reach C from B , AD has to shift to right, i.e Increase in AD . So if Taxes are cut, AD increaases to AD policy. All oher options are monetary policy options which effect AS.

3. Fed will Pursue a expensionary fiscal policy

As shift in AD is required, as real GDP is less than Potential , so expensionary fiscal policy

Actual GDP Increases

Potential GDP remains Same

Price Level Increases

Unemploynment Decreases.

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