Fiscal policy can be discretionary, but an economy also has automatic stabilisers that influence business cycles even if a government is not proactively using fiscal policy tools. The major discretionary fiscal policy tools available to a government to correct an economy that is out of equilibrium are taxes and government expenditures.
Key learning objectives:
Explain automatic stabilisers and how they work over a business cycle
Examine the discretionary policy tools available to governments to influence business cycles, specifically taxes and government expenditures