Explain how automatic stabilizers work, both on the taxation side and on the spending side, first...

Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy is producing more than potential GDP.

Solutions

Expert Solution

Answer:

•GDP stands for Gross domestic product. In a downturn(recession), the tax deduction will naturally accumulate as income are low and income are low.

•Numerous government assistance and joblessness programs are intended to help the individuals who are qualified in specific classes, for example, "jobless" or "low salary."

•During the downturn, more individuals fall into these classifications and consequently fit the bill for benefits.

•The mix of low assessments and significant expenses requires the economy to deliver not as much as GDP in a downturn. With monetary development, the normal pay level in the economy increments, so more expenses are consequently charged.

•Less individuals have the measures to get government help for the jobless or poor people, so government spending for joblessness help and government assistance will naturally diminish. A high expense and minimal effort economy will just deliver a higher economy than GDP.

Please upvote. Thank you

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Classify the actions as either discretionary spending or automatic stabilizers by placing each item in one...

Classify the actions as either discretionary spending or automatic stabilizers by placing each item in one of the two categories. Discretionary Spending Automatic stabilizers - A bill is passed to increase unemployment benefit payments - Government spending on welfare increases because high unemployment leads to an increase in applicants - A law is enacted that increases Medicare coverage - The government cuts taxes to stimulate consumer spending - The government increases tax rates to prevent inflation - Tax revenue increases...

Answer two (2) of the following essay questions. 1) How do automatic stabilizers, on both the...

Answer two (2) of the following essay questions. 1) How do automatic stabilizers, on both the expenditure and revenue sides of the budget, respond when the economy is in 1) a contractionary 2) an expansionary gap? 2) How much should the government 1) increase spending or 2) cut taxes when the economy is in a contractionary gap equal to 500 billion and the MPC equals 0.8. 3) According to the classical school of economists, the economy is self-correcting. Explain why...

a. What are automatic fiscal stabilizers? How do these stabilizers stabilize real GDP in the face of...

a. What are automatic fiscal stabilizers? How do these stabilizers stabilize real GDP in the face of AD and AS shocks? b. What is the role of the simple multiplier [ 1/{1 - MPC(1 - t) - m}] in stabilization of the swings in real GDP? c. How the slope of the AD curve affects the stability of real GDP in the presence of AS shocks? d. How the automatic stabilizers depend on the sizes of MPC, t, and m.

a. Built-in (or automatic) stabilizers work by changing ______ so that changes in GDP are reduced....

a. Built-in (or automatic) stabilizers work by changing ______ so that changes in GDP are reduced. multiple choice 1 government payouts and interest rates taxes and government payouts interest rates and investment wages and prices b. What type of tax system would have the most built-in stability? multiple choice 2 A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes. A regressive tax since it...

Automatic stabilizers are changes in taxes or government spending that decrease aggregate demand without requiring policymakers...

Automatic stabilizers are changes in taxes or government spending that decrease aggregate demand without requiring policymakers to act when the economy is in an expansionary boom that is causing inflation. Select one: True False If there is no change in the unemployment compensation program, then the total amount of benefits paid to participants in the program will fall during economic expansions and rise during recessions. Select one: True False Critics of stabilization policy argue that the policy can be a...

Describe how certain aspects of fiscal policy function as automatic stabilizers for the economy.

Distinguish between automatic stabilizers and discretionary fiscal policy in terms of how they affect the economy....

Distinguish between automatic stabilizers and discretionary fiscal policy in terms of how they affect the economy. Give an example of each.

Explain the difference between discretionary an automatic spending by the government

How do built-in stabilizers work to reduce rises and falls in the level of nominal GDP?

(1 Question, 2-parts) Consider automatic stabilizers (aka non-discretionary fiscal policy): 1) How does the United States'...

(1 Question, 2-parts) Consider automatic stabilizers (aka non-discretionary fiscal policy): 1) How does the United States' structure of taxes and government spending add stability in this specific scenario: The U.S. economy is experiencing high GDP growth rates and has a high (and increasing) inflation rate? 2) What effect do automatic stabilizers have on the U.S. Government Budget if the economy is sliding into a recession? Please be specific in describing the impacts on the budget, and only if the economy...

Subjects