Sia
Question
Statistics
Posted 10 months ago
Which of the following is an example of an automatic stabilizer that can reduce the effect of a recession on output?
Choose 1 answer:
(A) One-time tax rebates
(B) Reserve requirements
(C) Institutions such as paying unemployment compensation
(D) Laws requiring balanced budgets
(E) Government spending
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Identify the concept of automatic stabilizers in the context of macroeconomics. Automatic stabilizers are economic policies and programs designed to offset fluctuations in a nation's economic activity without additional government action
step 2
Analyze the given answer choices in the context of automatic stabilizers. One-time tax rebates (A) are not automatic; they require legislative action. Reserve requirements (B) are a monetary policy tool, not a fiscal policy tool. Institutions such as paying unemployment compensation (C) automatically provide benefits during recessions, which helps to stabilize income and consumption. Laws requiring balanced budgets (D) can exacerbate economic fluctuations by forcing government spending cuts or tax increases in downturns. Government spending (E) is too broad and not necessarily automatic
step 3
Conclude that the correct answer is the one that best represents an automatic mechanism that operates without new legislative action and helps to stabilize the economy during a recession
Answer
C
Key Concept
Automatic Stabilizers
Explanation
Automatic stabilizers are mechanisms that automatically adjust to counteract economic fluctuations and stabilize the economy, such as unemployment compensation.
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