When Output Deviates from Potential GDP, Automatic Stabilizers Work to Push

question 4

Multiple Choice

When output deviates from potential GDP, automatic stabilizers work to push the economy:

• A) in the same direction that correctly timed and formulated discretionary policy would.
• B) to lower rates of inflation.
• C) away from risky financial investments.
• D) None of these.

---

Definitions:

Real Assets

Physical or tangible assets such as real estate, commodities, or natural resources that have intrinsic value.

Production Equipment

Machinery and tools that are used in the manufacturing process to create products and goods.

Bonds

Fixed-income instruments that represent a loan made by an investor to a borrower, typically corporate or governmental, which pay periodic interest payments and repay the principal at maturity.

Financial Assets

Assets that derive value from a contractual claim, such as stocks, bonds, bank deposits, and other securities.