Question

Which describes the role of automatic stabilizers in the economy?

Automatic stabilizers are discretionary changes to taxes, government spending, and transfers that Congress makes in an attempt to improve the economy.

Automatic stabilizers refer to industries that are not subject to the fluctuations of the economy, and therefore moderate the effects of recessions. Food, housing, and the military are examples of these industries, which are usually more stable than the rest of the economy.

Automatic stabilizers are changes in the money supply that occur automatically when inflation or unemployment occurs.

Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions.

Answer 1

d. Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions.

Step-by-step explanation:

Automatic stabilizers are changes in taxes and government expenditure that occur automatically as the economy fluctuates and simulate discretionary fiscal policy.

As one example, transfer payments typically increase during recessions as more people become eligible for various programs. Aggregate demand increases as people receiving transfers increase their consumption. Discretionary fiscal policy during a recession might seek the same goal of increasing aggregate demand.

A key difference, however, is that discretionary fiscal policy requires action from government, whereas automatic stabilizers are automatic. This is significant when policy makers have trouble coming to agreement about the best course of action.