Question

8. Discretionary fiscal policy is when the government __________________________________________.

passes a new law that implicitly changes tax or spending levels

increases taxes to reduce the money supply

reduces taxes to increase money supply

passes a new law that explicitly changes tax or spending levels

Answer 1

8. Discretionary fiscal policy refers to the policy implemented by the government that is imposed with quick decision to make changes in the economy without prior commitment as it is an action of a government to make explicit changes in the taxation policy or government spending. It has a temporary tax cut or increases by the people that impact the economy in the short-run to stabilize the economy.

Therefore, the correct option is: Discretionary fiscal policy is when the government passes a new law that explicitly changes tax or spending levels.