Question

Of the following examples, which is an example of an automatic fiscal policy stabilizer?

A) Tax revenues fall after Congress decreases corporate tax rates.

B) Congress decides to cut spending on national parks.

C) Congress increases individual income tax rates.

D) Tax revenues increase as real GDP increases.

From a bank’s perspective, which of these scenarios would be the MOST advantageous for it?

A) Jacob pulls out cash from his account every month to pay all of this bills in cash.

B) Angela has most of her cash in her checking account and pays for everything with her debit card.

C) Santo and Maria have the majority of their salaries directly deposited into their savings account with 20% deposited to their checking account.

Answer 1

1. D) Tax revenues increase as real GDP increases.

Explanation: Automatic economic stabilizers are not deliberate and they come into force automatically to bring the economy back to normalcy.

2. Option C

Explanation: This would help the bank have a higher amount of reserve and loan out more to people as withdrawal demand is likely to be less.