Question

Automatic stabilizers can do which of the following?A. offset the destabilizing influence of changes in tax revenuesB. aid the economy to move away from the full-employment output levelC. allow policymakers to formulate a set of rules flexible and comprehensive enough to eliminate discretionary actionsD. cause tax revenues to decrease when GDP decreases and to increase when GDP increasesE. allow policymakers to prescribe public works programs during inflationary periods because expenditures for unemployment and welfare have correspondingly decreased

Answer 1

Automatic stabilizers can offset the destabilizing influence of changes in tax revenues by adjusting tax rates and government spending automatically in response to changes in economic conditions.

Step-by-step explanation:

Automatic stabilizers can offset the destabilizing influence of changes in tax revenues (option A) by adjusting tax rates and government spending automatically in response to changes in economic conditions. For example, during a recession, when GDP decreases, automatic stabilizers cause tax revenues to decrease and government spending on unemployment and welfare programs to increase, which helps to stabilize the economy.

However, automatic stabilizers do not aid the economy in moving away from the full-employment output level (option B) or allow policymakers to formulate a set of rules flexible and comprehensive enough to eliminate discretionary actions (option C).

Therefore, the correct answer is option D: Automatic stabilizers cause tax revenues to decrease when GDP decreases and to increase when GDP increases.

Answer 2

D. cause tax revenues to decrease when GDP decreases and to increase when GDP increases.

Step-by-step explanation:

Gross Domestic Products (GDP) is a measure of the total market value of all finished goods and services made within a country during a specific period.

Simply stated, GDP is a measure of the total income of all individuals in an economy and the total expenses incurred on the economy's output of goods and services in a particular country.

Automatic stabilizers can be defined as changes in government spending or taxes and consequently, raises aggregate demand without the intervention of policy makers when an economy falls into recession.

In Economics, it is also referred to as built-in stability and this means that with given tax rates and expenditures policies such as fiscal and monetary policy; an increase in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.

Basically, an automatic stabilizer is an economic system or policies that automatically shore up or strengthen the Gross Domestic Products (GDP) without specific government intervention for sustenance or creation of stability in the economic cycle of a country.

Hence, automatic stabilizers can cause tax revenues to decrease when GDP decreases and to increase when GDP increases.