Question: Classify the actions as either discretionary spending or automatic sta
ID: 1174400 • Letter: Q
Question
Question: Classify the actions as either discretionary spending or automatic stabilizers. Place each item into one of the two categories.
- economic growth increases personal and corporate income, increasing tax payments
- a bill is passed to increase unemployment benefit payments
- an increased number of layoffs increases government spending on unemployment benefits
- the government implements cuts in spending in order to balance the budget
- a recession that reduces personal income and corporate profits results in a reduction in tax revenue
- a law is enacted that increases canada pension plan benefits
- the government cuts taxes to stimulate consumer spending
- an increase in applicants leads to an increase in government spending on welfare
- the government increases tax rates to prevent inflation
Explanation / Answer
The fiscal policy of an economy has two approaches
Stabilizer
Automatic
Discretionary
economic growth increases personal and corporate income, increasing tax payments
YES
As economic growth changes automatically
NO
a bill is passed to increase unemployment benefit payments
YES
As unemployment is linked with economic growth
NO
an increased number of layoffs increases government spending on unemployment benefits
YES
As unemployment is linked with economic growth
NO
the government implements cuts in spending in order to balance the budget
NO
YES
As done by government deliberately
a recession that reduces personal income and corporate profits results in a reduction in tax revenue
YES
Personal income and profits are linked with economic growth
NO
a law is enacted that increases Canada pension plan benefits
YES
Pension benefits comes under automatic stabilizers as explained above
NO
the government cuts taxes to stimulate consumer spending
NO
YES
As done by government deliberately
an increase in applicants leads to an increase in government spending on welfare
YES
applicants increase when there is low economic growth in an economy, this happens automatically
NO
the government increases tax rates to prevent inflation
NO
YES
As done by government deliberately
Stabilizer
Automatic
Discretionary
economic growth increases personal and corporate income, increasing tax payments
YES
As economic growth changes automatically
NO
a bill is passed to increase unemployment benefit payments
YES
As unemployment is linked with economic growth
NO
an increased number of layoffs increases government spending on unemployment benefits
YES
As unemployment is linked with economic growth
NO
the government implements cuts in spending in order to balance the budget
NO
YES
As done by government deliberately
a recession that reduces personal income and corporate profits results in a reduction in tax revenue
YES
Personal income and profits are linked with economic growth
NO
a law is enacted that increases Canada pension plan benefits
YES
Pension benefits comes under automatic stabilizers as explained above
NO
the government cuts taxes to stimulate consumer spending
NO
YES
As done by government deliberately
an increase in applicants leads to an increase in government spending on welfare
YES
applicants increase when there is low economic growth in an economy, this happens automatically
NO
the government increases tax rates to prevent inflation
NO
YES
As done by government deliberately
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