Which of the following is considered an automatic stabilizer?
A) investment expenditure
B) export purchases
C) induced tax
D) government purchases of military equipment

Question

Quizplus · Accepted Answer

An induced tax is considered an automatic stabilizer because it adjusts based on changes in income levels. As income levels decrease during a recession, tax revenue will also decrease, which helps to stimulate the economy. Conversely, as income levels increase during an economic expansion, tax revenue will also increase, helping to prevent the economy from overheating. Investment expenditure, export purchases, and government purchases of military equipment are not automatic stabilizers, as they are not directly linked to changes in economic activity.

Which of the Following Is Considered an Automatic Stabilizer