Three of the following are Automatic Stabilizers. Which is not? A. Something built into the federal...

Three of the following are Automatic Stabilizers. Which is not?

A. Something built into the federal budget to stabilize the economy

B. unemployment insurance

C. Demand side Fiscal policy

D. Progressive income tax

Keynes argued AD is unstable because

A.As is unimportant

B. Fiscal policy makes it that way

C. Business have too much influence

D. the self correcting market is dominant

If the government cuts taxes, they are engaging in

A.decreasing AS

B. decreeing AD

C. Expansionary Fiscal Policy

D. Contractionary Fiscal policy

Expert Solution

1. The anwer is "Something built into the federal budget to stabilize the economy"

Here all other are automatic stabilizers. Automatic stabilizers act to stabilize economic cycles and are automatically triggered without additional government action. Unemployment insurance, progressive taxation and fiscal policy acts as automatic stablizers.

2. Keynes argued AD is unstable because Business have to much influence. Business investment can affect consumption and shiff AD

3. If the government cuts taxes then they are engaging in Expansionary fiscal policy.

Lower taxes will result in increase in disposable income and increase spending thus AD shifts towared right.

Rahul Sunny answered 2 years ago

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