Discretionary Fiscal Policy Refers To Flashcards, test questions and answers

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What is Discretionary Fiscal Policy Refers To?

Discretionary fiscal policy refers to government actions that are taken in order to influence the level of economic activity in a country. This is done by adjusting taxes, public spending, or other forms of government intervention. Discretionary fiscal policy is used to achieve a variety of goals such as stabilizing prices and employment, improving incomes, and reducing poverty.The main instruments of discretionary fiscal policy are taxation and government spending. Taxation can be used to raise revenue for the government as well as regulate economic behavior by setting tax rates on different types of goods or services. Tax cuts may stimulate investment and consumption by leaving consumers with more disposable income while higher taxes may slow growth by increasing the cost of doing business. Government spending can help stimulate growth through direct investments in infrastructure projects or social programs such as welfare payments. It can also be used to increase demand for certain sectors such as defense or education.Although discretionary fiscal policy can be an effective tool for governments to manage their economies in times of crisis, it should not be seen as a substitute for sound macroeconomic policies such as monetary policy or structural reform measures that address underlying problems within the economy.