Question

• What are the possible effects from making these types of changes to either government spending or taxes?
• Give an example of a discretionary fiscal policy action you have seen taken in the past and why you felt that action was taken.
• please use mla format to cite

Answer 1

The effect of government increasing spending and decreasing taxes will affect economic development. If the tax rates reduced, the disposable income will increase. The fall in tax rates increase the demand and also increase the production. Rising government spending and falling level of tax rates are the two sides of the same coin. One of the most important component of the aggregate demand is G. When this G increased the total production or GDP raised and the unemployment rate reduced. The expansionary fiscal policy mainly focused on the rising of GDP rate from its current level. If the government reduce the tax rates the consumer demand increased. This will leads to the rise in total national output.

Discretionary fiscal policy means the government reduce its spending and increasing the tax slabs. The discretionary fiscal policies are automatic fiscal stabilizers. On the one hand this type of policies will reduce the consumption pattern of the people and it reduces the total national output. But on individual perspective of some products, the imposition of taxes will reduce the consumption of some dangerous goods, which affect the health of the consumer like, alcohol and other harmful products. Discretionary fiscal policies also leads to the withdrawal of some programmes which imposed by the government to raise their spending level. The major aim of this discretionary policy is the shrinking of the economy. This will increase the burden of taxes among the consumers.