Question

Automatic stabilizers tend to: (A) keep money supply at a steady 4 to 6 percent increase annually.(B) adjust pay to cost of living changes automatically.(C) act in a manner that is automatically counter-cyclical.(D) do none of the above.

Answer 1

Answer:

B ) Adjust to pay the cost of living, is the correct option.

Explanation:

Automatic Stabilizers are government spending and taxes which automatically increase or decrease with the business cycle or the spending and tax changes that increase or decrease over the business cycle without any action by the government. The example of automatic stabilizers is unemployment insurance payments which rise because of layoffs in a recession and falls as the employment increases in the expansion phase of the business cycle.

Income taxes also have this effect, as when income fells people have to pay less in incomes. The automatic stabilizer government programs tends to reduce the fluctuations in the GDP automatically.