Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case of recession
What will be an ideal response?
Examples of automatic stabilizers are unemployment insurance payments and income taxes. (The student only needs to present one example.) Automatic stabilizers change tax receipts and government spending automatically as a result of fluctuations in the business cycle. This occurs without discretionary actions on the part of government. In the case of recession, they would change automatically to stimulate spending in the economy. During a recession, employment declines and government spending on unemployment insurance payments increases. This should raise disposable income and consumer spending above what they would otherwise be. During a recession, income tax receipts decline as incomes decline. This automatic decline in income tax revenues keeps disposable income and consumer spending from falling as much as they would without automatic stabilizers.
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Goods can be classified on the basis of whether their consumption is
A) includable and cooperative. B) rival and excludable. C) internal and excludable. D) rival and competitive.
In which of the following cases will centralization of decision making be appropriate?
a. When different departments in an organization function separately without much interrelation. b. When information necessary for the decision making process originates from a variety of sources. c. When the organization expands in size and its activities become more complex. d. When all the information comes from an external source.
When the market estimate of a company's riskiness decreases the market adjusts by
a. having the supply of that bond increase. b. having the supply of that bond decrease. c. having the demand for that bond increase. d. having the demand for that bond decrease.
One reason why the Soviet Union grew slowly in the 20th century compared to the United States and Western Europe was that it:
A. licensed too many private enterprises, creating destructive competition. B. invested in too many consumer goods. C. did not invest as much in capital goods. D. did not provide incentives for individuals to produce what consumers valued.