Which of the following best illustrates the use of discretionary fiscal policy?

A) Congress providing $1 billion in relief aid for hurricane victims
B) Congress appropriating $400 million to help the needy and the appropriation being financed by a tax on wealth
C) Income tax receipts being smaller because of a decline in real GDP during a recession
D) The Federal Reserve tightening credit when it receives news of accelerating inflation
E) Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

Question

Franco Dipietro · Accepted Answer

Final Answer : E, Explanation :  Discretionary fiscal policy involves intentional changes in government spending and taxation in order to achieve a specific economic outcome. Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession is an example of discretionary fiscal policy because it involves intentional government action to increase spending in response to a recession. The other choices may involve government spending or taxation, but do not necessarily involve intentional discretionary fiscal policy.

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