How do automatic stabilizers, on both the expenditure and revenue sides of the budget, respond during a recession?
What will be an ideal response?
Automatic stabilizers are spending and revenue items that respond automatically and countercyclically to the changes in national income. During a recession national income decreases, and spending in the form of income transfers increases automatically. This helps to increase AD. In addition, the revenue collected from a progressive income tax system automatically decreases. This also helps to increase AD. These automatic responses to the business cycle reduce the recessionary gap.
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Elasticity of demand will ____ as the availability of substitutes ____
a. increase; decreases b. decrease; increases c. increase; increases d. remain unchanged; decreases
Which of the following is not an example of scarcity?
a. Only some people can afford to buy a BMW automobile. b. Every individual in society cannot attain the highest standard of living to which he or she might aspire. c. Miranda has more oranges in her orchard than she will ever use. d. Each member of a household cannot get everything he or she wants.
Which of the following is a good example of a negative externality?
A. A landfill that creates undesirable odors on surrounding property B. A forest that absorbs carbon dioxide and generates oxygen C. A "big box" retail store that outcompetes existing retail stores D. A rose garden in your front yard
If the equation for the quantity theory of money is looked on as a demand-for-money equation, then the demand for money depends on
A. nominal income and the interest rate. B. real income but not on the interest rate. C. real income and the interest rate. D. nominal income but not on the interest rate.