The trade cycle (a) At point Z on the diagram, which one of the following is likely to occur? An increase in: A absolute poverty B budget deficit C cyclical unemployment D inflation (b) With reference to the graph, explain the difference between automatic stabilisers and discretionary fiscal policy. - Edexcel - A-Level Economics A - Question 4 - 2022 - Paper 2

Automatic stabilisers are mechanisms in government spending and taxation that automatically adjust without the need for direct intervention from the government. For instance, during economic upturns, tax revenues naturally increase and welfare payments decrease, which helps to stabilize the economy. In contrast, discretionary fiscal policy requires deliberate action by the government to alter its spending and taxation policies to achieve specific economic objectives. For example, a government may decide to increase public spending or implement tax cuts when recession is anticipated, as depicted in a negative output gap on the graph. At point Z, an increase in government spending would be less relative to discretionary fiscal policy, as automatic stabilisers would already be responding to the economy's current state.