Explain how automatic stabilizers work
What will be an ideal response?
Taxes and transfer payments are automatic stabilizers for the economy. When income is high, the government collects more taxes and pays out less transfer payments, thus reducing consumer spending, which in turn reduces output. When output is low, such as during a recession, the government collects less in taxes and pays out more in transfer payments, increasing consumer spending and therefore increasing output. Note that this occurs without any decisions from Congress or the White House.
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Control of monetary policy rests with
A) Congress. B) the President. C) the Federal Reserve. D) the Comptroller of the Currency. E) the U.S. Treasury.
When a good is price inelastic, consumer expenditures on the good
A) increase when price increases. B) decrease when price increases. C) do not change when price increases. D) are not related to price elasticity of demand.