Which of the following would be an example of automatic fiscal stabilization? Select one: a. A...

Which of the following would be an example of automatic fiscal stabilization? Select one: a. A decrease in income due to a decrease in government expenditure b. A decrease in tax revenue due to a lower tax rate c. A decrease in income due to an increase in the tax rate d. An increase in tax revenue due to an increase in investment

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Answer:

d. An increase in tax revenue due to an increase in investment.

Automatic fiscal stabilization:

Automatic fiscal stabilization is a type of fiscal policy in which government's spending And revenue automatically stabilize (through normal operations) without intervention of central bank or government authorities.

Example: When investment increases then it will increased output so, increasing output will increased the income level of the people. Increasing income level will boost the aggregate demand. Aggregate demand is directly affected by consumption, government spending, investment and net export. When, consumption, government spending, investment and net export increase then its increased the aggregate demand. Increasing aggregate demand boost the total output (GDP) growth. When economy grow then the income level of taxpayers is increased and pay higher tax amount that increased the tax revenue.

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Rahul Sunny answered 2 years ago

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