Suppose the government increases spending to fund tuition for qualified university students.Automatic stabilizers will _____ the _____ effect of the _____ in aggregate demand.
A) increase;contractionary;decrease
B) decrease;contractionary;increase
C) increase;expansionary;increase
D) decrease;expansionary;increase

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as taxes and unemployment benefits, work to smooth out economic fluctuations. When government spending increases, it has an expansionary effect on aggregate demand. Automatic stabilizers will decrease this expansionary effect by offsetting some of the increase in demand through higher taxes or reduced benefits as incomes rise.

Suppose the Government Increases Spending to Fund Tuition for Qualified