An important automatic fiscal stabilizer in Canada is
A)the exchange rate.
B)the marginal propensity to consume.
C)the marginal propensity to import.
D)the income-tax system.
E)government purchases of goods and services.

Question

Quizplus · Accepted Answer

The income-tax system is an important automatic fiscal stabilizer in Canada because it is progressive, which means that people with higher incomes pay a higher percentage of their income in taxes. During an economic downturn, incomes tend to fall, resulting in lower tax revenues for the government. However, as people's incomes decrease, the percentage of their income that they pay in taxes also decreases, which helps to maintain their disposable income and stimulate consumption. This helps to stabilize the economy during a downturn.

An Important Automatic Fiscal Stabilizer in Canada Is