Question

Anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers is called what?

-A built-in stabilizer
-Discretionary policy
-Corporate taxes
-Government spending

Answer 1

An automatic stabilizer is anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers.

Step-by-step explanation:

An automatic stabilizer is anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers. It is a mechanism built into the economy that helps stabilize economic activity and counteract fluctuations without the need for discretionary policy changes.

For example, during a recession, people's incomes tend to decrease, which leads to a lower collection of income taxes. This reduction in tax revenues automatically increases the budget deficit and stimulates the economy. On the other hand, during an expansion, people's incomes rise, resulting in higher tax revenues and a decrease in the budget deficit.

This process occurs naturally as a result of changes in economic conditions and does not require policymakers to take specific actions. Therefore, the correct answer is A built-in stabilizer.