Distinguish between automatic stabilizers and discretionary fiscal policy in terms of how they affect the economy....

Distinguish between automatic stabilizers and discretionary fiscal policy in terms of how they affect the economy. Give an example of each.

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Expert Solution

automatic stablizers is a type of automatic fiscal policy of the government also known as automatic stablisation which takes place when the changing economic conditions automatically change the government expenditures and government tax regime which helps to combat and control unemployment and demand pull inflation . these actions take place without the influence of any or any deliberate action of the legislative body rather it stimulates aggregate recession and reduce aggregate spending during expansion .

deliberate fiscal policies are the polices enacted by the the central government and are discretionary in nature that are enacted to combat situation of unemployment or inflation by deliberately adjusting taxes and spending thereof to control the situataion . depending upon the conditions the central government may --

1. raise the taxes or cut the taxes

2. change personal income tax exemptions and deductions

3. grant of tax rebates

4. levy surcharges

5. intiate or postpone transfer programme

Rahul Sunny answered 2 years ago

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