An automatic stabilizer is:
A) A government spending or tax change that automatically responds counter to the business cycle.
B) A tax cut approved by Congress prior to an election year.
C) A monetary supply or interest rate change that automatically responds counter to the business cycle.
D) Supply-side policy designed by Congress to shift aggregate supply to the right.

Question

Quizplus · Accepted Answer

An automatic stabilizer is a government spending or tax change that automatically responds counter to the business cycle. For example, during an economic recession, government spending on unemployment benefits automatically increases, while tax revenue automatically decreases as people earn less income. These automatic stabilizers help stabilize the economy without the need for active government intervention or discretionary policy changes.

An Automatic Stabilizer Is