Question

#1

Please identify what they are (i.e., discretionary fiscal policy, monetary policy, or automatic stabilizer) and explain why.  

1a) A terrible recession occurs as a result of a bubble in the housing market bursting, and government-funded unemployment compensation is paid out to laid-off workers.

1b) As the economy heats up, the resulting increase in equilibrium GDP results in higher income tax payments, which dampen consumption spending somewhat.

1c) To stem an overheated economy, the president, using special powers granted by Congress, authorizes emergency impoundment of funds that Congress had previously authorized for spending on some government programs to help reduce government spending (G), and thus help reduce inflation.

1d) The Federal Reserve decides to increase the money supply in order to help lower interest rates and stave off a more severe recession.

Can an export please help me solve this? I need help with this question as it is for macro Econ.

Answer 1

-Discretionary fiscal policy is used by the government in the form of taxes and government spending

-Monetary policy is used by the Fed to control the money supply in the economy

-Automatic stabilizers are measures such as income tax, transfer payments which stabilizes the economy in case of fluctuation such as inflation and recession occurs.

1a) A terrible recession occurs as a result of a bubble in the housing market bursting, and government-funded unemployment compensation is paid out to laid-off workers.-Automatic stabilizer

1b) As the economy heats up, the resulting increase in equilibrium GDP results in higher income tax payments, which dampen consumption spending somewhat.-Automatic stabilizer

1c) To stem an overheated economy, the president, using special powers granted by Congress, authorizes emergency impoundment of funds that Congress had previously authorized for spending on some government programs to help reduce government spending (G), and thus help reduce inflation.-Discretionary fiscal policy

1d) The Federal Reserve decides to increase the money supply in order to help lower interest rates and stave off a more severe recession.- Monetary policy