The Effect of Automatic Stabilizers on the Business Cycle Is

question 136

Multiple Choice

The effect of automatic stabilizers on the business cycle is to:

• A)make upswings larger and downswings smaller.
• B)make upswings smaller and downswings larger.
• C)make both upswings and downswings smaller.
• D)eliminate fiscal drag.
• E)make both upswings and downswings larger.

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Definitions:

Liquidity Preference Theory

A theory which suggests that people prefer to hold their wealth in liquid form for immediate use rather than in longer-term investments, affecting interest rates and economic activity.

Overall Price Level

A comprehensive measure reflecting the general prices of goods and services in an economy at a given time, similar to the average cost of living.

Interest Rate

The percentage of a loan amount charged by lenders to borrowers for the use of their money, expressed as an annual percentage.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing what is lost by choosing one option over another.