Determine whether each of the following is an example of a automatic fiscal satb

Question

Determine whether each of the following is an example of a automatic fiscal satbilizer Give reasons for support:

1. a governmnet agency arranges to make loans to businesses automatically when an economic downturn begins.

2.As the economy heats up, the resulting increase in equilibrium real GDP immediately results in higher income tax payments which dampens consumption spending somewhat.

3.As the economy starts to recover from recession and more people go back to work, governmnet funded unemploymnet compensation payments begin to decline.

4.tostem overhead economy, the president, by using special powers granted by Congress, authorizes emergency impoundment of funds. These funds were previously authorized for spending on government programs.

Explanation / Answer

Govt. transfers, welfare policies and taxes(based on income, not autonomous) are fiscal automatic stabilizers. Therfore, 1, 2 and 3 are the instances of fiscal automatic stabilizer.

4th point is not an example of automatic stabilizer as it does not form a part of the previously well defined policy for the utilisation of funds during the different states of the economy neither does it automatically adjust to the state of the economy in order to stabilize the economy.

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