Which of the following are examples of automatic stabilizers? I. Personal income

Question

Which of the following are examples of automatic stabilizers?

I. Personal income tax
II. The required reserve ratio
III. Unemployment insurance benefits
IV. Corporate income taxes




A. I, II, III, and IV

B. I, III, and IV only

C. II and III only

D. I and IV only

Consider an economy in recession with a marginal propensity to consume (MPC) of 0.6.

8.2. Suppose the government increases purchases by $30 billion. Assuming there is no crowding-out effect, by how much will aggregate demand increase?




A. $45 billion

B. $75 billion

C. $60 billion

D. $30 billion

Consider an economy in recession with a marginal propensity to consume (MPC) of 0.6.

8.1. What is the spending multiplier for this economy?





Please enter 1 digit after the decimal point.

Explanation / Answer

B. I, III, and IV only

$75 billion

Y/G=1/(1-MPC)
Y=G/(1-MPC)
MPC=0.6
G=+30
Y=30/(1-0.6)=30/0.4 = +75 billion

My answer is: 2.5
( 1 / 1 - .6 = 1 / .4 = 2.5 )

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