Question

g Automatic stabilizers a. increase the problems that lags cause in using fiscal policy as a stabilization tool. b. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. c. are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. d. All of the above are correct.

Answer 1

Answer:

b. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.

Explanation:

Automatic stabilizers are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes 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.

Hence, 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.

For example, personal and corporate income tax usually decline in the event of recession in a country because individuals and business owners or entities make less, thus leading to unemployment and an increase in social security funds or welfare.