Question

Economist Mark Thoma has​ written, "One of the difficulties in using fiscal policy to combat recessions is getting Congress to agree on what measures to implement. ... Automatic stabilizers bypass this difficulty by doing exactly what their name​ implies." ​Source: Mark​ Thoma, "The Importance of Automatic Stabilizers to the​ Economy," cbsnews​, January​ 25, 2010. Automatic stabilizers are A. government spending and taxes that automatically increase or decrease along with the business cycle. B. changes in the money supply that occur automatically when money demand changes. C. changes in business taxes that occur when the economy slows down. D. budgetary cuts that occur automatically at the end of the fiscal year if there is a deficit.

Answer 1

Answer:

The correct option is A,government spending and taxes that automatically increase or decrease along with the business cycle.

Explanation:

From a U.S perspective, automatic stabilizers are measures built into the country budgets that adjust the taxes to government's coffers and government expenditure when the economy goes into recess.

These measures are not usually approved by the Congress.

If one takes a careful look at the question, one would notice that the question talks about fiscal policy measures, which are government spending and taxes,invariably, option B is wrong because money supply belongs to monetary policy.

Option C is also wrong because taxes is not the only fiscal policy available.

Option D is wrong budget is a fiscal policy tool not a measure.