When workers lose their job, they file for unemployment benefits; therefore, government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Based on the given information, which statement is correct?

Question

Quizplus · Accepted Answer

The given information suggests that unemployment compensation is an automatic stabilizer, as it naturally increases during recessions and decreases during economic recovery. Automatic stabilizers are built-in government programs that adjust spending and taxation without explicit government action to offset fluctuations in economic activity. Unemployment benefits are not an example of discretionary fiscal policy, as they do not require active government intervention or decision-making. Additionally, unemployment benefits are not designed to increase short-run aggregate supply, nor are they an example of a supply-side policy.

When Workers Lose Their Job, They File for Unemployment Benefits;