An automatic stabilizer is a feature of the economy that
A)makes prices "sticky."
B)reduces its sensitivity to shocks.
C)maximizes its volatility.
D)automatically reduces recessionary trends.

Question

Quizplus · Accepted Answer

An automatic stabilizer is a feature of the economy that reduces its sensitivity to shocks. This means that when the economy experiences any external shock or disturbance, such as changes in government policy, interest rates, or business cycles, these stabilizers automatically stabilize the economy by minimizing the impact of these shocks on the economic activity. Examples of automatic stabilizers include unemployment insurance, progressive income tax, and government transfer payments, which automatically adjust to changes in the economic environment without requiring any legislative action or discretionary policy intervention.

An Automatic Stabilizer Is a Feature of the Economy That