Fiscal Policy= change in gov’t expenditures (spending) and taxation in order to achieve macroeconomic goals, example= stable prices, low unemployment, high growth, etc. This is used to stimulate a slow economy or slow down an economy that is moving too fast.
-Expansionary= Increase in government spending/ decrease in taxes. Used when economy is in a recession. *Increases AD
-Contractionary= Decrease in government spending/ increase in taxes. Used when economy is in an expansion. *Decreases AD
-Discretionary Policy= when the government deliberately acts to manipulate the economy.
-Automatic= no explicit action is taken by the government. When business cycle changes, these are built in stabilizers.
OKAY, now,
1) what is the difference between discretionary policy and expansionary/contractionary policy?
2) Are all three of those (discretionary, expansionary and contractionary) part of fiscal policy?
3) Is discretionary policy like a main topic and expansionary and contractionary policies are the details?
Macro Fiscal Policy Help (discretionary/expansionary/co…
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First of all, understand that there are two types of fiscal policy: discretionary and automatic.
Expansionary and contractionary and types of fiscal or automatic fiscal policies.
Now with your questions:
1) There is no difference between the two. Rather, expansionary and contractionary fiscal policies are TYPES of discretionary policy.
2) Yes they are all parts of fiscal policies. Automatic stabilizers are also a part of it but like your definition, the government doesn’t need to act for it to happen. It just happens.
3) Yep…that’s exactly right. Discretionary policy is what the government does. Depending on what they do determines whether it is expansionary or contractionary.