In terms of fiscal policy, which of the following is an example of a fiscal automatic stabilizer?
A)The reduction in the money supply that occurs as banks become less willing to make loans during a recession
B)The reduction in wages that occurs as the economy goes into a recession
C)The increase in government spending that occurs as the result of new spending bills passed by Congress
D)The rise in tax revenue that occurs as a result of growth in real GDP

Question

Quizplus · Accepted Answer

Automatic stabilizers are mechanisms built into government budgets, without specific action by policymakers, that tend to stabilize the economy by increasing spending or decreasing taxes as the economy goes into a downturn, and doing the opposite in an upturn. The rise in tax revenue as a result of growth in real GDP is an example of an automatic stabilizer because as the economy grows and incomes increase, tax revenues automatically increase without any new legislation, helping to moderate the economic cycle.

In Terms of Fiscal Policy, Which of the Following Is