Evaluate the following statements about fiscal policy tools:
I. Automatic stabilisers are fiscal mechanisms that automatically expand government expenditure or reduce taxes during a recession without any deliberate government action — examples include unemployment benefits and progressive income taxes.
II. Discretionary fiscal policy refers to intentional government decisions to change tax rates or spending levels to influence economic activity, such as announcing a new stimulus package during a slowdown. Which of the above is/are correct?

Both statements are correct. Statement I: Automatic stabilisers work without explicit government decisions. During a recession, tax revenues automatically fall (as incomes drop) and social welfare spending automatically rises (as more people qualify for unemployment benefits) — both of which support aggregate demand without any policy action. Progressive income taxes act as automatic stabilisers because the tax burden automatically lightens during downturns. Statement II: Discretionary fiscal policy involves active, deliberate changes in government expenditure or taxation in response to economic conditions. Examples include a special infrastructure spending package announced to stimulate a slowing economy, or a temporary tax cut to boost consumption. Discretionary policy has an inside lag (time to decide) and outside lag (time to take effect), which can reduce its effectiveness.