Which of the following best defines automatic stabilizers?
A)changes in taxes or government spending that increase the lags caused by fiscal policy
B)changes in taxes or government spending that shift aggregate demand without requiring active policies
C)changes in taxes or government spending that policymakers quickly agree to
D)any changes in taxes or government policies

Question

Quizplus · Accepted Answer

Automatic stabilizers are policies in which changes in taxes and government spending occur automatically without requiring legislative action. They aim to stabilize the economy by offsetting fluctuations in aggregate demand. For example, during a recession, unemployment insurance and welfare benefits automatically increase, which leads to an increase in aggregate demand and a stabilizing effect on the economy. Similarly, during an expansion phase, tax revenues increase automatically, which reduces the government's budget deficit and helps to stabilize the economy. Therefore, option B correctly defines automatic stabilizers.

Which of the Following Best Defines Automatic Stabilizers