Which of the following is an example of an automatic stabilizer?
A) tax reductions passed by Parliament in times of unemployment
B) tax reductions passed by Parliament in times of inflation
C) government defence spending
D) unemployment insurance

Question

Which of the following is an example of an automatic stabilizer?  
A) tax reductions passed by Parliament in times of unemployment 
B) tax reductions passed by Parliament in times of inflation 
C) government defence spending 
D) unemployment insurance

Quizplus · Accepted Answer

An automatic stabilizer is a feature of the economy that reduces its sensitivity to economic shocks. Unemployment insurance is an example of an automatic stabilizer because it automatically increases during times of high unemployment, which helps to support consumer spending and mitigate the negative effects of the economic shock. Options A and B are discretionary fiscal policies, not automatic stabilizers, because they require the government to take action to implement them. Option C is an example of government spending, but it is not an automatic stabilizer.

Which of the Following Is an Example of an Automatic