What Is the Most Important Automatic Stabilizer

question 98

Multiple Choice

What is the most important automatic stabilizer?

• A) government spending
• B) the tax system
• C) unemployment compensation
• D) welfare benefits

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Definitions:

Variable Resource

A factor of production whose quantity can easily be changed in the short term to increase or decrease production levels.

Fixed Resource

An asset or resource in production that cannot be easily increased or decreased in the short term, such as land or machinery.

Diminishing Returns

The principle that says as more of a variable input is added to a fixed input, the incremental gain in output will eventually decrease.

Normal Profits

The level of profit that is necessary to cover the costs of a firm, including the opportunity costs of capital, ensuring the firm remains in business.