Automatic stabilizers have the effect of
A) increasing aggregate demand during a recessionary gap.
B) increasing aggregate demand during an inflationary gap.
C) increasing long-run aggregate supply during a recessionary gap.
D) increasing long-run aggregate supply during an inflationary gap.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment benefits, tax cuts during a recession, and increased government spending, help to stabilize the economy by increasing aggregate demand during a recessionary gap, which helps to counteract the decline in consumer and business spending. This can help to mitigate the severity of the recession and lead to a quicker recovery. Automatic stabilizers do not have a direct effect on long-run aggregate supply.

Automatic Stabilizers Have the Effect of