Question

Hereunder you will find lists of various macroeconomic actions. Match each action with one of the following policy measures (1) a discretionary fiscal policy, (2) an automatic stabilizer, or (3) not a fiscal policy.

a. Food stamps

b. Government spending on rebuilding airports

c. Tax credits for the purchase of energy efficient appliances

d. The extension of the "Bush tax cuts" of 2001 and 2003

e. Changing the required reserve ratio

f. The bailout of large financial institutions during the financial crisis

g. The progressive income tax system

Answer 1

The progressive tax system is an anutomatic stabilizer, when the income is high the tax will be also high and vice versa. The changing required reserve ratio is not a fiscal policy rather than that is a monetary policy. The moneytary policy is implemented by the central bank of a country. The fiscal policy is the policy of the government, the fiscal policy has three components that are taxation, spending and borrowing.