Which of the following are examples of automatic stabilizers? (Select all that apply

Marketing Dec 29, 2020

Which of the following are examples of automatic stabilizers?

(Select all that apply.)

a) In 2001, partly in response to a recession, Congress enacted lower income tax rates and increased tax exemptions for married couples.

b) In response to the 1981-82 recession, the U.S. government passed a law that lowered personal income tax rates.

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

d) As unemployment falls during an expansion, unemployment insurance payments decline.

Expert Solution

The correct answers are C and D.

Options A and B are not considered to be automatic stabilizers because they both required a legislative change (i.e. in both cases, a change in the taxation legislation). On the other hand, options C and D are changes that occured without any government intervention.

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