Which of the following is true about automatic stabilizers?
A)Automatic stabilizers are a part of discretionary fiscal policy.
B)The federal funds rate is an example of an automatic stabilizer.
C)An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations.
D)Any kind of trade policy adopted by the government will be considered as an automatic stabilizer.
E)When income rises, automatic stabilizers increase/boost spending.

Question

Quizplus · Accepted Answer

Automatic stabilizers are any program or policy implemented by the government that responds to fluctuations in the business cycle in a way that moderates the effect of the fluctuations. Examples include unemployment insurance, welfare programs, and progressive income taxes. Option A is incorrect because automatic stabilizers are not discretionary fiscal policy, which involves deliberate policy choices made by the government to influence the economy. Option B is also incorrect because the federal funds rate is a monetary policy tool used by the Federal Reserve, not an automatic stabilizer. Option D is incorrect because trade policy is not designed to affect the business cycle or stabilize the economy. Option E is incorrect because automatic stabilizers work in the opposite way; they decrease spending when income rises to prevent overheating of the economy.

Which of the Following Is True About Automatic Stabilizers