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Which type of discretionary fiscal policy is likely to have the smallest overall effect on GDP...

Which type of discretionary fiscal policy is likely to have the smallest overall effect on GDP because of the low MPC related to the policy?

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Answer #1

Fiscal policy is the policy of the government which is related with taxation revenue and government spending. Discretionary fiscal policy as we know uses two tools , as budget process and taxation process.

The spending have the overall low impact on the overall level on GDP when there is low marginal propensity to consume related to the policy. The low marginal propensity to consume makes the government spending inappropriate. The MPC needs to be high , to make the government spending more helpful.

Hope you got the answer.

Kindly comment for further explanation.

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