Question

The most important automatic stabilizer (The one with the biggest impact on the economy) is:

A. open market operations.
B. the unemployment compensation system.
C. the tax system.
D. the welfare system.

Answer 1

The most important automatic stabilizer that has the biggest impact on the economy is the tax system. It adjusts tax rates and provides tax relief during economic downturns, helping stimulate aggregate demand.

Step-by-step explanation:

The most important automatic stabilizer that has the biggest impact on the economy is the tax system. Automatic stabilizers occur quickly in the economy, and when there are lower wages, a lower amount of taxes is withheld from paychecks right away, which helps boost disposable income. On the other hand, higher unemployment or poverty triggers government spending in those areas, which helps stimulate aggregate demand. The tax system plays a crucial role in adjusting tax rates and providing tax relief during economic downturns, making it the most important automatic stabilizer.