Generally speaking, automatic fiscal stabilizers
A)raise the level of consumption during recessions, which offsets any decrease in investment
B)dampen the decrease in disposable income during recessions, so disposable income as a fraction of total income actually rises
C)increase the size of the fiscal policy multiplier
D)cannot be relied on if a disturbance is transitory
E)work mainly through reduction in the outside lag

Question

Quizplus · Accepted Answer

Automatic fiscal stabilizers refer to the features of the tax and transfer systems that act to offset fluctuations in economic activity without requiring explicit action by policymakers. These stabilize economic activity without conscious intervention to stimulate or contract the economy. In periods of recession, these stabilizers provide a cushion to the economy by dampening the decrease in disposable income. This helps to support consumption and prevents a further decrease in aggregate demand. As a result, disposable income as a fraction of total income actually rises, which helps to stabilize the economy during periods of economic downturn.

Generally Speaking, Automatic Fiscal Stabilizers