What are automatic stabilizers? How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?
What will be an ideal response?
Automatic stabilizers are features of fiscal policy that stabilize real GDP without the need for explicit policy action by the government. Automatic stabilizers include induced taxes and needs-tested spending. During a recession, induced taxes decrease and needs-tested spending increases, so the budget deficit increases (or the budget surplus decreases). During an expansion, induced taxes increase and means-tested spending decreases, so the budget deficit decreases (or the budget surplus increases).
You might also like to view...
Which of the following is an example of a capital good?
A. A metal-stamping machine used to produce cars sold to an automaker B. A new CD player sold to a teenager C. A new CD player sold to an automaker for installation in a car D. A new car sold to a family
If a decrease in price increases total revenue, what can you determine about the elasticity of demand for the good?
What will be an ideal response?
Given a linear supply function of the form QXS = 3,000 + 3PX - 2Pr - Pw, find the inverse linear supply function assuming Pr = $1,000 and Pw = $100.
A. QXS = 900 + 3PX. B. PX = 2,900 + 3PX. C. PX = -300 + 0.3333QX. D. PX = 300 + 0.3333QX.
Which of the following is not a potential source of comparative advantage for China in the manufacturing sector?
A) Abundant low wage, low skill workers B) A large domestic market that can lead to scale economies C) Coastal areas with good logistics for international trade D) Abundant credit from China's government sector to set up manufacturing operations