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    Automatic Fiscal Stabilizers

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    Determine whether each of the following is an example of an automatic fiscal stabilizer:
    a) Government agency arranges to make loans to business when ever an economic downturn begins
    b) As the economy heats up, the resulting increase in equilibrium real GDP immediately results in higher income tax payments, which dampen consumption spending somewhat.

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    Solution Preview

    Automatic stabilizers are systems of revenue generation or taxation that cause people's disposable income to fluctuate inversely with the business cycle. For example, if a policy ...

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    This solution discusses automatic fiscal stabilizers.

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