During a Recession, Total Public Assistance Payments and Unemployment Compensation

question 44

Multiple Choice

During a recession, total public assistance payments and unemployment compensation payments automatically increase while income taxes automatically decrease. Which of the following best describes the effect of these changes on aggregate demand?

• A)​Aggregate demand will be less than it would be without these automatic stabilizers.
• B)​Aggregate demand will be the same as it was before the recession.
• C)​Aggregate demand will be more than it would be without these automatic stabilizers.
• D)​Aggregate demand will be greater than it was before the recession.

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Definitions:

Fair Value Method

An accounting approach to measure and report assets and liabilities at estimates of their current fair market prices.

Unrealized Holding Gain

The increase in the value of an asset that has not yet been sold and, therefore, not reflected in the earnings.

Available-For-Sale Securities

Financial assets not classified as held-to-maturity or trading securities, and thus can be sold in the short term for liquidity purposes.

Fair Value

The estimated price at which an asset or liability could be traded in a fair transaction between willing parties.