Which of the Following Is an Example of an Automatic

question 79

Multiple Choice

Which of the following is an example of an automatic stabilizer?

• A) Congress legislates lower tax rates to increase consumption and investment.
• B) Tax rates are increased during a recession to maintain a balanced budget.
• C) A regressive income tax system reduces tax revenues (as a share of income) as income expands.
• D) Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted.

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Definitions:

Compounded Monthly

The process where interest is calculated and added to the principal sum on a monthly basis.

End-of-quarter Payments

Payments made at the end of each quarter in the context of loans, leases, or other financial agreements.

Interest Rate

The portion of a total amount of money that is required as payment for borrowing it, typically expressed on a yearly basis.

Compounded Annually

A method where interest is calculated on the initial principal and also on the accumulated interest of previous periods, applied once a year.