What characterizes discretionary fiscal policy?

Discretionary fiscal policy is characterized by policies that are actively chosen and implemented by Congress or the legislative body. This type of policy involves deliberate changes in government spending and taxation intended to influence economic conditions. When legislators decide to increase spending on infrastructure or cut taxes, for example, they are engaging in discretionary fiscal policy aimed at stimulating the economy during a recession or cooling it down in times of inflation.

In contrast, automatic fiscal policies, such as those that occur with welfare programs or tax brackets that adjust with inflation, are not considered discretionary since they execute based on predefined criteria without active legislative intervention. Similarly, unplanned government expenditures and transfer payments do not define discretionary fiscal policy because they do not arise from a systematic effort to influence economic policy through legislation. Therefore, the focus on decision-making and action by lawmakers is what distinguishes discretionary fiscal policy as the correct answer in this context.