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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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