Which example is an automatic stabilizer in a modern economy?
Correct answer: A. Unemployment benefits that rise during a recession
- A. Unemployment benefits that rise during a recession
- B. A central bank decision to raise the policy rate
- C. A new law that permanently reduces public spending
- D. A one-time government programme for road construction
Explanation
Unemployment benefits increase automatically when more people lose jobs, supporting household income during a downturn. A policy rate change and a new spending programme require deliberate policy decisions, so they are discretionary measures.
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