Which of the following can be considered as an automatic stabilizer in the economy?
A)Real exchange rate
B)Real interest rate
C)Unemployment insurance
D)Money supply
E)Disposable income

Question

Quizplus · Accepted Answer

Unemployment insurance provides income support to individuals who have lost their jobs, thereby helping them to maintain their consumption levels. This stabilizes the overall economy as it dampens the negative impact of unemployment on aggregate demand.

Answer: E
 Disposable income is the income that households have available to spend after paying taxes. During an economic downturn, disposable incomes are likely to fall as incomes decline and more people become unemployed. This reduction in disposable income acts as an automatic stabilizer as it helps to cushion the impact of the downturn on consumer spending.

Which of the Following Can Be Considered as an Automatic