Which of the following is the best example of an automatic stabilizer?
A) welfare payments
B) foreign aid
C) defense spending
D) highway construction

Question

Quizplus · Accepted Answer

Automatic stabilizers are government programs that automatically adjust to changes in the economy, providing stimulus during a recession and restraining the economy during a boom. Welfare payments, such as unemployment insurance and food stamps, are a prime example of automatic stabilizers. As unemployment rises, more people qualify for these benefits, which help support their income and increase aggregate demand in the economy. Conversely, as the economy improves and more people are employed, fewer people need these benefits, which reduces government spending and helps prevent overheating of the economy. Foreign aid, defense spending, and highway construction are not examples of automatic stabilizers.

Which of the Following Is the Best Example of an Automatic