Suppose the government increases spending to fund tuition assistance for qualified college students. Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.
A)increase; contractionary; decrease
B)decrease; contractionary; increase
C)increase; expansionary; increase
D)decrease; expansionary; increase

Question

Quizplus · Accepted Answer

Automatic stabilizers, like taxes and unemployment benefits, work to smooth out economic fluctuations. When government spending increases, it boosts aggregate demand, creating an expansionary effect. Automatic stabilizers will decrease this expansionary effect by, for example, increasing tax revenues as incomes rise, thus moderating the increase in aggregate demand.

Suppose the Government Increases Spending to Fund Tuition Assistance for Qualified