Automatic fiscal stabilisers:

Question

BlackTom AI · Accepted Answer

Automatic fiscal stabilisers are built‑in government taxes and transfer payments that act counter‑cyclically without new legislative action.

1) Relevant knowledge points and concepts
- Definition: Automatic stabilisers are elements of the tax and transfer system (e.g., progressive income taxes, unemployment benefits, welfare) that automatically change with economic conditions.
- Mechanism: In a downturn tax revenues fall and transfer payments rise, supporting disposable income; in a boom taxes rise and transfers fall, moderating overheating.
- Key property: They operate automatically, requiring no discretionary policy decisions.

2) Step‑by‑step reasoning
- When GDP falls, employment and incomes fall → less income tax is collected automatically.
- Simultaneously more people become eligible for unemployment benefits and welfare → government transfer payments increase.
- The fall in taxes plus higher transfers cushions the fall in household disposable income, thereby reducing the decline in consumption and aggregate demand.
- The reverse occurs in an expansion: tax receipts rise and welfare payments fall, dampening the expansion.

3) Calculation example with intermediate steps
- Suppose GDP declines by $100 billion.
- Progressive tax system reduces tax receipts by 20% of that fall: 0.20 × $100bn = $20bn less tax paid (automatic stimulant).
- Unemployment benefits rise by $10bn because more people claim them.
- Net automatic fiscal support = $20bn + $10bn = $30bn cushioning effect (reduces the effective shock from $100bn to $70bn).

4) Why the correct answer is correct
- Option (a) states they "smooth cyclical changes in economic activity" which exactly describes the counter‑cyclical, automatic nature and stabilising purpose of these mechanisms.

5) Why other options are incorrect
- (b) "operate only as the economy goes into a recession": incorrect because they operate in both recessions and expansions (they dampen both downturns and upswings).
- (c) "require discretionary policy decisions before they operate": incorrect because by definition automatic stabilisers work without new policy actions.
- (d) "are no longer used by the Commonwealth government": incorrect and factually unsupported; modern tax-transfer systems still contain automatic stabilisers.

6) Conclusion
- Therefore the correct choice is (a): smooth cyclical changes in economic activity, which matches the provided answer.

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Automatic fiscal stabilisers:单项选择题

类似问题

Which of the following is not a strength of using fiscal policy as a tool to achieve macroeconomic goals?

Which of the following is the least likely effect of an increase in government spending?

Which of the following is the least likely effect of an increase in government spending?

​Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Which type of fiscal policy action is most appropriate during an economic boom to prevent overheating and inflationary pressures?

Keynesians government policies include investments in capital. These include

Effective Keynesian government policies to promote long term economic growth might include:

更多留学生实用工具

希望你的学习变得更简单

Many economists oppose a constitutional amendment that would require a balanced budget for the federal government because it would probably make the business cycle more volatile.