Automatic stabilizers are:
A) changes in fiscal policy that stimulate aggregate demand in a recession without the need for explicit action by policymakers.
B) subject to significant lags.
C) a result of the United States' regressive tax system.
D) not very effective fiscal policy.

Question

Quizplus · Accepted Answer

Automatic stabilizers are changes in fiscal policy that occur automatically without explicit action by policymakers. They work to stabilize aggregate demand during economic downturns, through mechanisms like unemployment insurance and progressive income taxes.

Answer B, C, and D are incorrect. B is incorrect because automatic stabilizers work without significant lags, since they kick in immediately during an economic downturn. C is incorrect because automatic stabilizers are a result of the United States' progressive tax system, not regressive. D is incorrect because automatic stabilizers can be effective in stabilizing the economy during a recession, even though they may not be sufficient on their own.

Automatic Stabilizers Are