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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.

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 21, Problem 6CQQ
Textbook Problem
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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 of Solution

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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Chapter 21 Solutions

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