Do Automatic Fiscal Stabilisers Eliminate Business Cycles

question 65

Multiple Choice

Do automatic fiscal stabilisers eliminate business cycles?

• A) Yes
• B) No, they make business cycle fluctuations more severe.
• C) No, because they have no effect if the business cycle is the result of some unanticipated change.
• D) No, they increase the likelihood that a business cycle occurs.
• E) No, but they do moderate business cycles.

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Definitions:

Monetary Neutrality

The idea that changes in the money supply only affect nominal variables and have no long-term impact on real variables like output or employment.

Real Variables

Economic variables that have been adjusted for changes in price levels, reflecting the actual purchasing power.

Nominal Variables

Variables measured in monetary terms without adjusting for inflation, reflecting current prices.

Hyperinflations

Extremely high and typically accelerating inflation rates, drastically eroding the real value of the local currency.