Hereunder you will find lists of various macroeconomic actions. Match each action with one of the...

Hereunder you will find lists of various macroeconomic actions. Match each action with one of the following policy measures (1) a discretionary fiscal policy, (2) an automatic stabilizer, or (3) not a fiscal policy.

a. Food stamps –

b. Government spending on rebuilding airports -

c. Tax credits for the purchase of energy efficient appliances -

d. The extension of the "Bush tax cuts" of 2001 and 2003 -

e. Changing the required reserve ratio -

f. The bailout of large financial institutions during the financial crisis -

g. The progressive income tax system -

Solutions

Expert Solution

(a)

People eligible for food stamps, generally, increases during recession and decreases during expansion.

So, Food stamps is an automatic stabilizer.

(b)

Government spending on rebuilding airports is a fiscal policy initiative.

In specific terms, it is discretionary fiscal policy initiative.

(c)

Policy pertaining to levy of taxes or reduction of taxes is a fiscal policy initiative.

So, tax credits for the purchase of energy efficient appliances is a discretionary fiscal policy.

(d)

Policy pertaining to levy of taxes or reduction of taxes is a fiscal policy initiative.

So, the extension of the "Bush tax cuts" of 2001 and 2003 is a discretionary fiscal policy.

(e)

Changing the required reserve ratio is a monetary policy initiative.

So, it is not a fiscal policy.

(f)

The bailout of large financial institution during the financial crisis is a one-off decision pertaining to fiscal policy.

So, it is a discretionary fiscal policy.

(g)

The progressive income tax system acts as automatic stabilizer.

Rahul Sunny answered 1 year ago

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