Question

Classify the actions below as either discretionary spending or an automatic stabilizer. Place each item into one of the two bins. The president implements cuts in government spending in order to balance the budget A law is enacted that increases The government cuts taxes to Medicare coverage stimulate consumer spending The government increases tax rates to prevent inflation A reduction in tax revenue that results from a recession reducing personal income and corporate profits An increased number of layoffs Economic growth increases increases government spending on personal and corporate income unemployment benefits increasing tax payments An increase in government spending on welfare due to an increase in applicants A bill is passed to increase unemployment benefit payments

Answer 1

Discretionary spending in the interference of govt. or central bank to interfere with economy.

Automatic Stabilizers automatically effect the economy without any interference from economy. They act automatic dampners of bussiness cycle

Discretionary Spending

The president implements cuts in govt. spending

The govt. increases tax rate to prevent inflation

A bill is passed to increase unemployment benefits.

A law is enacted that increases Medicare coverage.

The govt. cuts taxes to stimulate consumer spending

Automatic stabilizers

An increase number of layoffs increases govt. spending on unemployment benefits.

A reduction in tax revenue that results from a recession reducing personal income and corporate profits.

An increase in govt. spending on welfare due to increase in applicants.

Economic growth increases personal and corporate income increasing tax payments