Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
They increase aggregate demand, reducing public debt
B
They decrease aggregate demand, increasing public debt
C
They stabilize aggregate demand, potentially increasing public debt
D
They have no effect on aggregate demand or public debt
Understanding the Answer
Let's break down why this is correct
Answer
Automatic stabilizers are features of fiscal policy that help stabilize the economy without the need for new government action. During a recession, people often lose their jobs, which means they earn less money and spend less. However, automatic stabilizers like unemployment benefits or food assistance kick in to provide financial support to those affected, helping to maintain their spending levels. This increase in spending can support aggregate demand, which is the total demand for goods and services in the economy, and can help the economy recover more quickly. However, when these stabilizers are used more, it can increase public debt since the government is spending more money to support its citizens during tough times.
Detailed Explanation
Automatic stabilizers help keep spending steady during a recession. Other options are incorrect because Some might think stabilizers boost demand and lower debt; It's a common mistake to think stabilizers cut demand.
Key Concepts
aggregate demand
automatic stabilizers
public debt
Topic
Fiscal Policy in Recessions
Difficulty
hard level question
Cognitive Level
understand
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