Question

10. Automatic stabilizers:

a. increase the problems that lags cause in using fiscal policy as a stabilization tool.

b. are changes in taxes or government spending that increase aggregate demand without requiring policymakers to act when the economy goes into recession.

c. are changes in taxes or government spending that policymakers quickly agree to when the economy goes into recession.

d. All of the above are correct.

Answer 1

Option b

b. Change in taxes or government spending that increase aggregate demand without requiring policymakers to act when the economy goes into recession.

An automatic stabilizer is a behavior of the fiscal policies work automatically in the opposite of the problem or solve the problem automatically.

EX. if an economy is in the recess then the income decreases unemployment increases and consumption decreases, but the tax is a progressive tax so the decrease in income tax decreases, an unemployment benefit increases government transfer, so the consumption increases automatically so that some tools are called automatic stabilizers.