Question

Aspects of fiscal policy Suppose the economy had been producing at potential output but is now producing above it. Which of the following are discretionary fiscal policies that could bring the economy closer to potential output? Check all that apply. ? a. A tax increase b. A rise in spending to prevent coastal erosion c. A reduction in spending on new road constructiond. A tax cut In the preceding scenario, is the discretionary fiscal policy needed to bring the economy closer to potential output an example of expansionary fiscal policy or contractionary fiscal policy?a. Expansionaryb. Contractionary

Answer 1

Answer:

d. A tax cut

a. Expansionary

Explanation:

Fiscal policy refers to the use of government spending and tax policy to influence how the economy operates. Discretionary fiscal policy is a type of policy that uses expansionary or contractionary measures in order to change the course of the economy. This can be further divided in two types: expansionary and contractionary.