Explain how automatic stabilizers work
What will be an ideal response?
Taxes and transfer payments are automatic stabilizers for the economy. When income is high, the government collects more taxes and pays out less transfer payments, thus reducing consumer spending, which in turn reduces output. When output is low, such as during a recession, the government collects less in taxes and pays out more in transfer payments, increasing consumer spending and therefore increasing output. Note that this occurs without any decisions from Congress or the White House.
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The purpose of __________ is to cover everyone over 65 years of age and reduce the financial burden of illness on the elderly
a. Social Security b. Medicaid c. Medicare d. AFDC e. Americorps
Rent-seeking behavior refers to
a. the offering of goods on a for-rent rather than for-sale basis. b. profit maximization by producers. c. unproductive activity in the pursuit of economic profit. d. illegal manipulation of prices.
If the demand for dollars in the market for foreign-currency exchange shifts right, then the exchange rate
a. rises and the quantity of dollars exchanged rises. b. rises and the quantity of dollars exchanged does not change. c. falls and the quantity of dollars exchanged falls. d. falls and the quantity of dollars exchanged does not change.
Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?
A. an increase in the discount rate B. an increase in the required reserve ratio C. buying government securities in the open market D. a decrease in federal spending