Explain what is meant by a built-in stabilizer and give two examples.
What will be an ideal response?
Built-in stabilizers are changes in tax revenues or government spending which occur automatically during different phases of the business cycle. For example, the progressive income tax will dampen any expansion of aggregate demand in the recovery peak phases; and will dampen any decline in income and aggregate demand during a recession as taxes are automatically reduced by a greater proportion than the decline in personal income. There are also government spending programs which increase during recessionary periods automatically as incomes decline or are lost. The so-called “safety net” programs include unemployment compensation, welfare programs, and food stamp spending. These spending programs are automatically reduced during a recovery peak phase which would dampen aggregate demand and inflationary pressures automatically.
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Common resources are overused because:
a) the marginal private benefit will always exceed the marginal social cost b) the marginal social benefit is not taken into consideration by producers c) social costs are controlled by quotas d) the social costs outweigh the private costs
In 2008, the Treasury and Federal Reserve took several actions in response to the deepening financial crisis. One action was the Treasury's move to have the federal government take control of
A) JPMorgan Chase. B) Fannie Mae and Freddie Mac. C) the Federal Deposit Insurance Corporation (FDIC). D) Lehman Brothers.