Suppose welfare payments increase during economic recessions with no change in benefit rates. This is an example of automatic stabilization.

Question

Quizplus · Accepted Answer

Automatic stabilization refers to government policies that automatically help stabilize the economy without requiring any additional actions. An increase in welfare payments during economic recessions is an example of automatic stabilization because as the economy worsens, more people may become unemployed or face financial difficulties, leading to an increase in demand for welfare programs. Without any change in benefit rates or additional government action, these programs automatically kick in and provide support to those in need, helping to stabilize the economy during downturns.

Suppose Welfare Payments Increase During Economic Recessions with No Change