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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Which of the following is an example of an automatic stabilizer? When the economy goes into a recession.

a. more people become eligible for unemployment insurance benefits.

b. stock prices decline, particularly for firms in cyclical industries.

c. Congress begins hearings about a possible stimulus package.

d. the Federal Reserve changes its target for the federal funds rate.

To determine

Automatic stabilizers.

Explanation

Option (a):

In unemployment insurance benefits scheme, the government transfers money to the unemployed so that their incomes do not fall as much during recession. Thus, their spending will not fall as much and this stimulates the aggregate demand. Thus, option ‘a’ is correct.

Option (b):

Fluctuations in stock price are not examples of automatic stabilizers...

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