Which statement best describes discretionary fiscal policy?

Discretionary fiscal policy refers to the deliberate actions taken by the government to influence economic activity through changes in government spending and taxation. The key characteristic of discretionary fiscal policy is that it involves intentional decisions made by policymakers in response to economic conditions, such as fiscal stimulus during a recession or tax increases during times of economic growth.

This type of policy contrasts with automatic stabilizers, which are built into the system and adjust automatically to changes in economic activity without the need for additional government action. For example, unemployment benefits increase automatically when unemployment rises, and tax revenues decrease during economic downturns without any new policy decisions. Discretionary fiscal policy, on the other hand, requires legislative action to implement, such as a new government spending bill or changes in tax rates.

The other options describe aspects of fiscal policy but do not accurately define discretionary fiscal policy.