Final answer:
Automatic stabilizers are fiscal policies that automatically adjust spending and taxes in response to economic conditions without further legislation, designed to lessen the impact of economic fluctuations. Answer d for part 2 and answer b for part 3 are correct, describing their function to mitigate the effects of recessions and inflation.
Step-by-step explanation:
Automatic stabilizers in fiscal policy do not require new legislation to be implemented. They include mechanisms like the progressive income tax and unemployment compensation that automatically adjust government spending and taxation in response to economic changes. Therefore, the correct answer for part 2 is d, which states that automatic stabilizers cause changes in the economy without the action of Congress and the President.
The purpose of automatic stabilizers is to b, lessen the impact of unemployment in a recession and slowdown inflation during an expansion. These mechanisms work without any additional legislative action, providing a timely response to economic shifts and serving as a form of economic shock absorption.
Automatic stabilizers operate swiftly to offset shifts in aggregate demand caused by changes such as lower wages or higher unemployment, though they do not completely eliminate economic fluctuations. They have historically offset about 10% of changes in the level of output, which, while not fully stabilizing the economy, provides a layer of protection during economic volatility.