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. As unemployment falls during an expansion, employment Insurance payments decline. In the mid-1990s. Parliament passed expenditure cuts designed to reduce the deficit. In response to the 2008 recession, Parliament approved billions of dollars of additional spending on public Infrastructure projects. As people earn higher Incomes during an expansion, the progressive tax system requires them to pay higher average tax rates.

Explanation / Answer

Option A & D

Automatic stabilizers are some of the characteristics in the fiscal policy areas such as tax and unemployment benefits which used to correct the government cash flow in case of economic expansion or contraction.
These are designed to offest economic fluctuations in income without changes being made in taxes or legislation.
When unemployment falls then unemployment benefits handed out by government also takes a dip. On the other hand, if economy is in boom period then higher income results higher tax revenue to the government.
These are examples of automatic stabilizers.

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