In response to an economic downturn, a government experiences a rise in total welfare benefit payments due to rising unemployment, whilst simultaneously passing a new legislative bill to reduce the basic rate of income tax by 2%.
Which of the following correctly classifies these fiscal measures?
Both measures are classified as discretionary expansionary fiscal policies.
The increase in welfare payments is an automatic stabilizer, whilst the income tax reduction is a discretionary expansionary fiscal policy.
The increase in welfare payments is a discretionary expansionary fiscal policy, whilst the income tax reduction is an automatic stabilizer.
Both measures are classified as automatic fiscal stabilizers.
