As Income Increases During the Recovery from a Recession, Automatic

question 107

Multiple Choice

As income increases during the recovery from a recession, automatic stabilizers will:

• A)increase taxes and increase government spending, increasing the overall size of the government.
• B)reduce taxes and increase government spending, accelerating the recovery.
• C)increase taxes and decrease government spending, slowing the recovery.
• D)reduce taxes on high-income individuals and raise taxes on the poor, increasing economic inequality.

---

Definitions:

Equilibrium Real Interest Rate

The interest rate at which the demand for funds equals the supply of funds in the real economy, adjusted for inflation.

Loanable Funds

Loanable funds denote the money available for borrowing in the financial markets, influenced by savings and demand for loans.

Demand Shifts

Changes in consumer desire or preference that cause the demand curve to move either to the right (increase) or left (decrease).

Real Exchange Rate

A measure that compares the relative price of a basket of goods in two different currencies, adjusted for inflation.