Because of the Automatic Stabilizers, a Decline in the Level

question 127

Multiple Choice

Because of the automatic stabilizers, a decline in the level of economic activity will cause:

• A)a reduction in tax revenues collected.
• B)an increase in government expenditures.
• C)a greater budget deficit.
• D)all of these.

---

Definitions:

Fractional-reserve Banking

A banking system where banks hold only a fraction of their deposits in reserve, lending the rest to generate profits.

Money Supply

The collective volume of monetary assets within an economy at a certain point, including cash, coins, and balances in checking and savings accounts.

Fractional-reserve Banking

A banking system where banks hold only a fraction of deposits as reserves and lend out the remainder, thereby creating additional money supply.

Bank Runs

Situations where a large number of bank customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.