Automatic stabilizers

Question

Quizplus · Accepted Answer

Automatic stabilizers are programs and policies that automatically expand during a recession and contract during an expansion. They help to stabilize the economy without the need for discretionary policy changes by the government. One of the main functions of automatic stabilizers is to cushion the decrease in after-tax income when a recession occurs, as stated in option A. Option B is incorrect because automatic stabilizers do not magnify the increase in after-tax income during a boom, but rather help to stabilize the economy during economic downturns. Option C is incorrect because automatic stabilizers do not require the government to use discretionary policy, but rather are built into the tax code and social welfare programs. Option D is incorrect because automatic stabilizers do not require the government to balance the budget, but rather function independently of government budgeting decisions.

Automatic Stabilizers