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Explain why the income tax system, the Social Security system, and unemployment insurance are considered automatic stabilizers.

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Answer True or False

Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy's built instability?

1. Which of the following statements about the debate over stabilization policy are correct? Indicate all that apply.

a. Opponents of active stabilization believe that active fiscal and monetary policies do not affect aggregate demand.

b. Opponents of active stabilization policy believe that significant time lags in both fiscal and monetary policy often exacerbate economic fluctuations.

c. Advocates of active stabilization policy believe that the government can adjust monetary and fiscal policy to counteract waves of excessive optimism and pessimism among consumers and businesses.

d. Advocates of active stabilization believe that automatic stabilizers do not affect aggregate demand.

 

2. Which of the following are examples of automatic stabilizers? 

a. Unemployment insurance benefits

b. The federal funds rate

c. Corporate income taxes

d. all of the choices

 

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