Question

The primary benefit of the automatic stabilizers is:

A. they provide public assistance through legislative decision making.
B. they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle.
C. they require legislative action, so there is a lag in response to these tools to fluctuations in the business cycle, and there is time to identify the spillover effects.
D. none of the above.

Answer 1

Automatic stabilizers have the advantage of not requiring new legislative action, so there is no legislative lag before they respond to fluctuations in the business cycle. They work by adjusting tax rates and increasing government spending in response to economic conditions.

Step-by-step explanation:

The main advantage of automatic stabilizers over discretionary fiscal policy is that they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle.

Automatic stabilizers work on the taxation side by adjusting tax rates based on economic conditions. For example, during a recession when the economy is producing less than potential GDP, automatic stabilizers can decrease tax rates to provide individuals with more disposable income and stimulate spending.

On the spending side, automatic stabilizers increase government spending in areas such as unemployment benefits and poverty assistance. This helps boost aggregate demand during a recession and support individuals who may be experiencing economic hardship.