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Fiscal Policy - Assignment #2

Fiscal Policy - Assignment #2 - Automatic Expansionary 6...

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DISCRETIONARY OR AUTOMATIC In each of the following scenarios, tell me whether it is an automatic stabilizer used by the federal government or discretionary action (used when needed). Also, then tell me whether the action is expansionary (E) in nature or contractionary (C). 1) Recession raises the amount of unemployment compensation. Automatic Expansionary 2) The government cuts personal income tax rates. Discretionary Expansionary 3) The government eliminates favorable tax treatment on long-term capital gains. Discretionary Contractionary 4) Incomes rise; as a result, people pay a larger fraction of their income in taxes. Automatic Contractionary 5) As a result of recession, more families qualify for food stamps and welfare benefits.
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Unformatted text preview: Automatic Expansionary 6) The government eliminates the deductibility of interest expense of tax purposes. Discretionary Contractionary 7) The government launches a major new space program to explore Mars. Discretionary Expansionary 8) The government raises Social Security taxes. Discretionary Contractionary 9) Corporate profits increase; as a result, government collects more corporate income taxes. Automatic Contractionary 10) The government raises corporate income tax rates. Discretionary Contractionary 11) The government gives all its employees a large pay raise. Discretionary Expansionary...
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