Automatic stabilizers "lean against the prevailing wind" of the business cycle because:
A) wages are controlled by the minimum wage law.
B) federal expenditures and tax revenues change as the level of real GDP changes.
C) the spending and tax multipliers are constant.
D) they include the power of special interests.

Question

Quizplus · Accepted Answer

Automatic stabilizers are features of the economy that automatically adjust government expenditures and tax revenues as the level of real GDP changes. When the economy is in a recession, government spending increases and tax revenues decrease, which helps to stimulate economic activity. When the economy is overheating, government spending decreases and tax revenues increase, which helps to slow down the economy. Therefore, automatic stabilizers "lean against the prevailing wind" of the business cycle. The other options do not accurately describe the function of automatic stabilizers.

Automatic Stabilizers "Lean Against the Prevailing Wind" of the Business