Due to Automatic Stabilizers, When Income Decreases, Government Transfer Spending

question 1

Multiple Choice

Due to automatic stabilizers, when income decreases, government transfer spending:

• A)increases and tax revenues decrease.
• B)decreases and tax revenues increase.
• C)and tax revenues decrease.
• D)and tax revenues increase.

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Definitions:

Signaling

A solution to the problem of adverse selection that describes an informed party’s effort to communicate her type, risk, or value to less informed parties by her actions. A successful signal is one that bad types won’t mimic. Any successful signal can also be used as a screen.

Anticipate Adverse Selection

The practice of predicting and mitigating the likelihood of selecting undesirable risks due to information asymmetry.

Secure Neighborhood

An area or community designed or protected in a way that minimizes the risk of crime, providing a safe environment for its residents.

Insurance

A financial product sold by insurance companies to protect individuals and businesses against potential future losses in return for a premium.