Question

Unemployment compensation is:(A) an automatic stabilizer because it rises as income increases, slowing an economic expansion. (B) an automatic stabilizer because it falls as income increases, slowing an economic expansion. (C) an automatic stabilizer because it falls as income decreases, slowing an economic contraction. (D) not an automatic stabilizer.

Answer 1

Answer: Option (B) is correct.

Explanation:

Correct option:  an automatic stabilizer because it falls as income increases, slowing an economic expansion.

There are certain examples of automatic stabilizer such as corporate taxes and transfer payments that government uses to stabilize the economic cycles.

Automatic stabilizer can be defined as the type of fiscal policy which is introduced to offset the fluctuations in a nation's economic activity.

These stabilizers are under the government policies which are used to adjust the taxes and transfer payment to stabilize the various factors.