Question : Which of the following is an example of an automatic stabilizer in the federal budget?
Option 1: Unemployment insurance
Option 2: Military spending
Option 3: Social security
Option 4: All of the above
Correct Answer:
Unemployment insurance
Solution : The correct answer is (a) Unemployment insurance.
Unemployment insurance is an example of an automatic stabilizer in the federal budget. During economic downturns when more people become unemployed, the government automatically increases spending on unemployment insurance benefits. This helps provide income support to individuals who have lost their jobs, stabilizing their finances and stimulating consumer spending. As the economy improves and fewer people require unemployment benefits, the government's spending on unemployment insurance decreases.
Military spending and social security are not considered automatic stabilizers in the federal budget. Military spending is generally determined by specific appropriations and is subject to discretionary decisions by policymakers. Social security, while providing income support to eligible individuals, does not automatically adjust based on the state of the economy.
