Automatic stabilizers refer to:

A) the money supply and interest rates that automatically increase or decrease along with the business cycle.
B) government spending and taxes that automatically increase or decrease along with the business cycle.
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives.
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Question

18-12-2019
Business

contestada

Automatic stabilizers refer to:

A) the money supply and interest rates that automatically increase or decrease along with the business cycle.
B) government spending and taxes that automatically increase or decrease along with the business cycle.
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives.
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

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Answer:

B) government spending and taxes that automatically increase or decrease along with the business cycle.

Explanation:

The two most common automatic stabilizers are: income taxes and unemployment benefits.

When the economy is strong, people make more money, and income tax revenue automatically increases.

On the contrary, when the economy is weak, or in recession, people earn less, and more of them are unemployed. Unemployment benefits therefore increase accordingly.