Question

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 acts as a cushion on declining incomes—the tax bite is less, which leaves more of the lower income for spending.

• A proportional tax because individuals pay more in taxes if they have higher incomes, thus having more of a dampening effect on rising (or falling) incomes.

• A regressive tax because those with higher incomes pay a smaller proportion of their income in tax and thus can spend more.

Answer 1

a.

Built in (or automatic) stabilizers work by changing taxes and government payouts so that changes in GDP are reduced. Because the automatic stabilizers are progressively graduated corporate, transfer systems and personal income taxes such as unemployment insurance and welfare. Where built in or automatic stabilizers are called that, because they act to stabilize economic cycles and are triggered automatically without additional government actions.

Built in (or automatic) stabilizers does NOT work by changing government payouts and interset rates so that changes in GDP are reduced. Because automatic or built in stabilizers are primarily designed to counter negative economic shocks and recessions.

Built in (or automatic) stabilizers does NOT work by changing interset rates and investment so that changes in GDP are reduced. Because built in or automatic stabilizers are progressively graduated corporate and transfer systems such as unemployment insurance and personal income taxes and welfare.

Built in (or automatic) stabilizers does NOT work by changing wages and prices so that changes in GDP are reduced. Because built in or automatic stabilizers work by changing tax and government payouts not changing in wagrs and prices.

b.

A progressive tax because it increases at an increasing rate as income rises, thus having more of a dampening effect on rising (or falling) incomes is a type of tax system would have the most built-in stability. Because a progressive tax is based on the taxpayer's ability to pay. Rather than higher income it imposes a lower tax rate on low income.

A regressive tax since it acts as a cushion on declining incomes—the tax bite is less, which leaves more of the lower income for spending is NOT a type of tax system would have the most built-in stability. Because in this type of taxation, the rate dimnishes as the taxable amount increases. So there is inverse relationship between taxable income and tax rate.

A proportional tax because individuals pay more in taxes if they have higher incomes, thus having more of a dampening effect on rising (or falling) incomes is NOT a type of tax system would have the most built-in stability. Because this is a taxing mechanism in which the taxing authority charges the same tax rate form each tax payer, irrespective of income. This means every class of people pays the same rate of tax.

A regressive tax because those with higher incomes pay a smaller proportion of their income in tax and thus can spend more is NOT a type of tax system would have the most built-in stability. Because a regressive taxes place more burden on low income earners. So they take a higher percentage of income on the poor than on high income earners.