Briefly explain whether each of the following is (1) an example of a discretionary fiscal policy, (2) an example of an automatic stabilizer, or (3) not an example of fiscal policy. a. The federal government increases spending on rebuilding the New Jersey Shore following a hurricane. b. The Federal Reserve sells Treasury securities. c. The total amount the federal government spends on unemployment insurance decreases during an expansion. d. The revenue the federal government collects from the individual income tax declines during a recession. e. The federal government changes the fuel efficiency requirements for new cars. f. Congress and the president enact a temporary cut in payroll taxes. g. During a recession, California voters approve additional spending on a statewide high-speed rail system.

Step by step solution

01

Identify Discretionary Fiscal Policy

Discretionary fiscal policies are non-compulsory adjustments (made at the discretion of Congress or similar body) that affect government income and spending. Examples in this exercise include (a), where the federal government increases spending on rebuilding the New Jersey Shore following a hurricane, (f) where Congress and the President enact a temporary cut in payroll taxes, and (g) where, during a recession, California voters approve additional spending on a statewide high-speed rail system.

02

Identify Automatic Stabilizer

Automatic stabilizers automatically change government tax or spending in response to economic changes without requiring any legislator action. Instances in this exercise include (c), where the total amount the federal government spends on unemployment insurance decreases during an expansion, and (d) where the revenue the federal government collects from the individual income tax declines during a recession.

03

Identify Non-Fiscal Policies

Items not directly related to government revenue (tax) or spending are not considered examples of fiscal policy. (b), where the Federal Reserve sells Treasury securities, is a monetary policy, not a fiscal policy. Additionally, (e) where the federal government changes the fuel efficiency requirements for new cars, is regulatory policy, not fiscal policy.

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