What does "discretionary fiscal policy" entail?

Discretionary fiscal policy involves deliberate and intentional actions taken by a government to influence economic conditions through adjustments in spending and taxation. This policy is implemented as a response to changing economic circumstances, typically aimed at stimulating the economy during a downturn or cooling it during an overheated phase.

By actively choosing to increase government spending or cut taxes, policymakers can directly affect aggregate demand, employment levels, and overall economic growth. This approach contrasts with automatic stabilizers, which automatically adjust without the need for government intervention. Discretionary fiscal policy requires careful planning and is subject to the political process, which can lead to delays in implementation when the economy is in need of immediate action.

The other choices do not accurately describe discretionary fiscal policy. Automatic stabilizers refer to built-in fiscal mechanisms that adjust tax revenues and government expenditures automatically with economic changes, while unplanned economic fluctuations are not the result of deliberate policy actions. Long-term commitments to spending are more aligned with structural fiscal policies rather than discretionary ones, which are typically more short-term in nature and subject to change based on current economic conditions.