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Posted 2 months ago

Which of the following best describes an automatic stabilizer that will help Lincolnland recover from a recession?

Choose 1 answer:
(A) An increase in government spending, such as a new infrastructure project
(B) Government transfer programs, such as unemployment benefits
(c) An increase in short-run aggregate supply (SRAS) due to a decrease in the price level
(D) An increase in income tax revenues
(E) A new law granting tax rebates for firms building new factories
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Answer from Sia
Posted 2 months ago
Solution by Steps
step 1
To understand the role of automatic stabilizers in an economy, we need to recognize that they are designed to work without explicit government intervention, increasing or decreasing net government spending in response to economic fluctuations
step 2
Automatic stabilizers tend to reduce the severity of economic fluctuations by providing a counter-cyclical response. During a recession, when output and employment are falling, automatic stabilizers can help to stabilize the economy by increasing government spending or decreasing taxes, without the need for new legislation
step 3
Among the options provided, government transfer programs, such as unemployment benefits, automatically increase when the economy enters a recession because more people become eligible for these benefits as they lose their jobs. This increases government spending and supports aggregate demand, helping to stabilize the economy
Key Concept
Automatic Stabilizers
Automatic stabilizers are economic policies and programs that automatically adjust to counteract economic fluctuations without the need for new government action. Unemployment benefits are an example of an automatic stabilizer that helps to mitigate the impact of a recession by providing income to those who have lost their jobs, thereby supporting consumer spending and aggregate demand.

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