Which of the following serves as an automatic stabilizer in the economy?
A) interest rates
B) exchange rates
C) the inﬂation rate
D) the progressive income tax

Question

Quizplus · Accepted Answer

The progressive income tax serves as an automatic stabilizer as it helps to stabilize the economy during economic fluctuations. During a recession, taxpayers' incomes decrease, and the amount of taxes they pay also decreases. This reduction in tax revenue helps to stimulate the economy by allowing taxpayers to keep more of their money, which they can then spend or invest. During an economic boom, taxpayers' incomes rise, and the amount of taxes they pay also increases. This increase in tax revenue helps to prevent the economy from overheating by reducing the amount of disposable income available for spending or investment.

Which of the Following Serves as an Automatic Stabilizer in the Economy