Macroeconomics help please!!?
Which of the following is an example of an automatic stabilizer?
a. an increase in defense spending during an expansion
b. a decrease in social security benefits during a recession
c. an increase in welfare benefits during an expansion.
d. a decrease in unemployment benefits paid out during an expansion.
Answer:
c.
An automatic stabilizer is a policy that seeks to guide an economy back towards the stable growth rate. Economies are, of course, cyclical, with expansions (growing above the stable rate) and recessions (growing below the stable rate), stabilizers try to counteract expansions and recessions.
The ways that governments can try to guide their economies back to the stable levels involve government spending and taxes, mainly. Monetary poilcy can also be used, although it can be less direct.
Increasing spending attempts to push the economy up (as an automatic stabilizer, it's used during a recession), and increasing taxes is a means of pushing the economy down (during an expansion).
I said c was the answer because c is essentially an increase in taxes. If welfare benefits are increased, that means taxpayers pay more, which means taxes were increased. A tax increase leads to less disposable income, which can curb consumption, bringing GDP down to the stable growth rate.
Hope that helps.
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The universal economic problem is:?
a. an increase in defense spending during an expansion
b. a decrease in social security benefits during a recession
c. an increase in welfare benefits during an expansion.
d. a decrease in unemployment benefits paid out during an expansion.
Answer:
c.
An automatic stabilizer is a policy that seeks to guide an economy back towards the stable growth rate. Economies are, of course, cyclical, with expansions (growing above the stable rate) and recessions (growing below the stable rate), stabilizers try to counteract expansions and recessions.
The ways that governments can try to guide their economies back to the stable levels involve government spending and taxes, mainly. Monetary poilcy can also be used, although it can be less direct.
Increasing spending attempts to push the economy up (as an automatic stabilizer, it's used during a recession), and increasing taxes is a means of pushing the economy down (during an expansion).
I said c was the answer because c is essentially an increase in taxes. If welfare benefits are increased, that means taxpayers pay more, which means taxes were increased. A tax increase leads to less disposable income, which can curb consumption, bringing GDP down to the stable growth rate.
Hope that helps.
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