Explain the differences between discretionary fiscal policy and automatic stabilizers, and give one example of each

Question

What will be an ideal response?

Answer 1

Discretionary fiscal policy is government policy that involves deliberate changes in taxes, transfer payments or government expenditures to achieve macroeconomic policy objectives. Examples of discretionary fiscal policy include the government enacting tax cuts, increasing the duration of unemployment benefits, and increasing spending on infrastructure projects during a recession in an attempt to increase output and employment.
Automatic stabilizers refer to changes in taxes, transfer payments, or government expenditures that automatically occur with the business cycle. Examples of automatic stabilizers include the natural decrease in tax revenues and the natural increase in unemployment payments that occur during a recession.