Question

Classify the actions as either discretionary spending or automatic stabilizers by placing each item in one of the two categories.

Discretionary Spending	Automatic stabilizers

- A bill is passed to increase unemployment benefit payments

- Government spending on welfare increases because high unemployment leads to an increase in applicants

- A law is enacted that increases Medicare coverage

- The government cuts taxes to stimulate consumer spending

- The government increases tax rates to prevent inflation

- Tax revenue increases as a result of economic growth, increasing personal income

- Congress votes to cut government spending to balance the budget

- Corporate profits decline due to a recession, causing a reduction in tax revenue

- Widespread layoffs trigger an increase in government spending on unemployment benefits

Answer 1

- A bill. This is a specific fiscal action taken which is a part of government discretion. Hence it is discretionary Spending

- Government spending on welfare increases. Business cycle has raised unemployment which has increased unemployment benefits automatically. This is automatic stabilizer.

- A law. This is a specific fiscal action taken which is a part of government discretion. Hence it is discretionary Spending

- The government cuts taxes. This is a specific fiscal action taken which is a part of government discretion. Hence it is discretionary Spending

- The government increases tax. This is a specific fiscal action taken which is a part of government discretion. Hence it is discretionary Spending

- Tax revenue increases. This is automatic stabilizer.

- Congress votes. This is a specific fiscal action taken which is a part of government discretion. Hence it is discretionary Spending

- Corporate profits. This is automatic stabilizer.

- Widespread layoffs. This is automatic stabilizer.