Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?
A) Congress votes for a federal investment in infrastructure.
B) corporate subsidies for green energy investments
C) unemployment benefits
D) a stimulus package that reduces personal income taxes

Question

Quizplus · Accepted Answer

Unemployment benefits are an automatic stabilizer because during an economic contraction, more individuals are likely to lose their jobs and receive unemployment benefits. This results in an increase in government spending and moves the federal budget towards a deficit. Conversely, during an economic expansion, fewer individuals are likely to be unemployed and thus less likely to receive unemployment benefits. The decreased spending on unemployment benefits results in a surplus in the federal budget.

Which of the Following Is an Automatic Stabilizer That Moves