ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
An economy is in a boom with inflation rising above target. Without any new government decisions, tax receipts rise and unemployment benefit payments fall, which dampens demand. Which statement best describes this?
This describes automatic stabilisers. Tax receipts rise and benefit payments fall as the economy booms, without any new government decision, which dampens demand. It is not discretionary fiscal policy because no deliberate change was made, and it is neither monetary nor supply-side policy.
- ADiscretionary fiscal policy, because the government actively changed tax rates
- BAutomatic stabilisers, because taxes and benefits adjust with the economic cycleCorrect
- CMonetary policy, because demand is moderated through the money supply
- DSupply-side policy, because productive capacity is increased
Explanation
Automatic stabilisers are built-in features such as progressive taxes and welfare benefits that move with the cycle without new decisions. The scenario states there are no new government decisions, so it is not discretionary policy. It does not involve money supply or capacity.
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