Which of the following are examples of automatic stabilizers? Check all that app

Question

Which of the following are examples of automatic stabilizers? Check all that apply.

1. In response to the 2008 recession, Congress approved billions of dollars of additional spending on public infrastructure projects.

2. A corporate profits rise during an economic expansion, corporate income tax revenues rise.

3. As people earn higher incomes during an expansion, the progressive tax system requires them to pay higher average tax rates.

4. In 1968, Congress enacted a temporary 10% increase in personal income tax rates in response to an inflationary GDP gap.

Thank you!

Explanation / Answer

1.)Approval of billions of dollar spending on public expenditure is not a automatic stabilizer as it is being made by govt for specifically combating the recession. Economic system is not working automatically here.

2.) This is an example of the automatic stabilization, corporate earning increases during the expansion and tax paid by the govt also increases. On other hand, during the recession earnings of corporate decreases and they start paying lesser tax.

3)It is also example of automatic stabilizer, people pay more tax during the boom and lesser tax during the recession.

4) this is not automatic stabilizer, during the inflation, people are subject to more tax to tame down the inflationary pressure.

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