An example of an automatic stabilizer is
A) the progressive tax system.
B) the decision of the President to cut taxes in a recession.
C) the Congressional decision to increase unemployment benefits in a recession.
D) the raising of taxes on cigarettes to discourage smoking to stabilize health-care costs.

Question

Quizplus · Accepted Answer

The progressive tax system is an example of an automatic stabilizer because during an economic downturn, people tend to earn less income, which means they pay less in taxes. This reduction in taxes helps to stabilize the economy as people have more money to spend and stimulate economic growth. Similarly, during an economic expansion, people tend to earn more income and pay more in taxes, which helps to reduce the risk of inflation. The other choices, such as the decision of the President to cut taxes or the Congressional decision to increase unemployment benefits, are discretionary fiscal policy tools and not automatic stabilizers.

An Example of an Automatic Stabilizer Is