Discretionary (one word) policy consists of deliberate changes in government spending and taxation designed to achieve full employment, control inflation, and encourage economic growth.

Discretionary policy is a type of economic policy that involves the government intentionally altering its spending levels and tax rates to influence a nation's economy. The primary purpose of discretionary policy is to address the cyclical fluctuations that can occur in an economic cycle.

Here are the steps to understand this:

1. Discretionary policy is a conscious, intentional approach to managing the economy. It's not automatic or based on a set formula, but rather it requires active decision-making.

2. This policy involves two main tools: government spending and taxation. By increasing or decreasing either of these, the government can influence the economy.

3. The goals of discretionary policy are to achieve full employment, control inflation, and encourage economic growth.

   • Full employment means that everyone who wants to work and can work is employed.

   • Controlling inflation means keeping the general rise in prices across the economy at a manageable level.

   • Encouraging economic growth means increasing the production of goods and services over time.

4. For example, in a recession, the government might cut taxes and increase spending to stimulate the economy. Conversely, if the economy is overheating and causing high inflation, the government might do the opposite.

5. However, discretionary policy can be controversial. It requires making judgments about the state of the economy and the best course of action, which can be difficult and subject to political pressures.