One Characteristic of Automatic Stabilizers Is That They

question 195

Multiple Choice

One characteristic of automatic stabilizers is that they

• A) have no effect on unemployment.
• B) automatically produce surpluses during recessions and deficits during inflation.
• C) require no legislative action by Congress to be made effective.
• D) reduce the size of the federal government debt during times of recession.

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Definitions:

Treynor-Black Model

An optimization tool used by portfolio managers to balance the trade-off between risk and return by combining actively selected securities with a passively managed market portfolio.

Nonsystematic Risk

The risk associated with a specific issuer of a security, industry, or sector, which can be mitigated through diversification.

Systematic Risk

The risk inherent to the entire market or entire market segment, which cannot be mitigated through diversification.

Purely Passive Strategy

An investment strategy that involves no active management and typically focuses on investing in index funds to replicate market returns.