The effectiveness of the built-in or automatic stabilizers is limited because:
A)the stabilizers produce budget surpluses during recessions.
B)transfer payments and subsidies increase during inflation and decrease during recessions.
C)the offset which the stabilizers provide to a change in private spending is less than the change in private spending.
D)the stabilizers raise the general price level regardless of the phase of the business cycle.

Question

Quizplus · Accepted Answer

The effectiveness of the built-in or automatic stabilizers is limited because the offset which the stabilizers provide to a change in private spending is less than the change in private spending. This means that although the stabilizers can help to dampen the impact of economic fluctuations, they cannot completely stabilize the economy on their own. Transfer payments and subsidies that increase during inflation and decrease during recessions are actually part of the built-in stabilizers and are designed to offset changes in private spending. The stabilizers do not produce budget surpluses during recessions and do not necessarily raise the general price level regardless of the phase of the business cycle.

The Effectiveness of the Built-In or Automatic Stabilizers Is Limited