Suppose the government of a small island country does not currently have any automatic stabilizers in place but they decide to implement them with the expectation of an impending recession. Which of the following would be most effective?
A) Institute a 4-year term policy for the president.
B) Begin collecting property taxes.
C) Create an unemployment compensation program.
D) Pass legislation for a one-time investment in infrastructure.

Question

Quizplus · Accepted Answer

An unemployment compensation program is the most effective automatic stabilizer in the given scenario. During a recession, unemployment rates tend to rise, which decreases consumer spending and can further exacerbate the economic downturn. By having an unemployment compensation program in place, the government can provide financial assistance to those who have lost their jobs, helping to maintain consumer spending. This can help to stabilize the economy in times of recession. Option A (4-year term for president) is not an automatic stabilizer and would have no direct impact on the economy. Option B (property taxes) may be useful in increasing government revenue, but will not have a direct impact on stabilizing the economy during a recession. Option D (infrastructure investment) may have positive long-term effects on the economy, but it is not an automatic stabilizer and does not provide immediate relief during a recession.

Suppose the Government of a Small Island Country Does Not