Which of the following is not an automatic stabilizer?

Transfers to persons.

Public debt charges.

Personal income tax.

E.I premiums.

Expert Solution

E.I Premium is the correct answer.

Automatic stabilizers are parts of fiscal policies aimed at reviving economic growth or they could also be used to stop an economy from slipping into recession.

Examples of automatic stabilizers are cash transfer, increased government spending or a reduction in personal income taxes. Their main aim is to provide more dispoasable income in the hands of people in order to increase aggregate demand.

In the given question above, transfers to persons, public debt charges and personal income taxes are automatic stabilizers as these are parts of fiscal policies that could be used to revive aggregate demand in the economy.

However, employment insurance premium is a nominal premium which does not come as a part of fiscal policy and therefore can not be called an automatic stabilizer.

Rahul Sunny answered 2 years ago

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