Which of the following best characterizes the role of automatic stabilizers?
A) They require ongoing decisions about government purchases and taxation in order to promote full employment and price stability.
B) They include the unemployment insurance program, which helps reduce the negative effects of unemployment.
C) They tend to stimulate aggregate demand when the economy is experiencing an expansionary gap.
D) They include tax cuts passed by Parliament in order to ease a current recession in an economy that has a proportional income tax.

Question

Which of the following best characterizes the role of automatic stabilizers?  
A) They require ongoing decisions about government purchases and taxation in order to promote full employment and price stability. 
B) They include the unemployment insurance program, which helps reduce the negative effects of unemployment. 
C) They tend to stimulate aggregate demand when the economy is experiencing an expansionary gap. 
D) They include tax cuts passed by Parliament in order to ease a current recession in an economy that has a proportional income tax.

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment insurance, are designed to counteract economic downturns without the need for government intervention or ongoing decisions about purchases and taxation. They help reduce the negative effects of unemployment by providing income support to those who have lost their jobs, which in turn can help stabilize aggregate demand in the economy. Option A is incorrect as automatic stabilizers do not require ongoing decisions about government purchases and taxation. Option C is incorrect as automatic stabilizers do not necessarily stimulate aggregate demand during an expansionary gap, as they are designed to counteract downturns. Option D is incorrect as automatic stabilizers are not typically implemented through tax cuts, and a proportional income tax would not be affected by a tax cut regardless.

Which of the Following Best Characterizes the Role of Automatic