Question : Which of the following is an example of an automatic stabilizer?
Option 1: Unemployment benefits
Option 2: Defense spending
Option 3: Education spending
Option 4: Social security spending
Correct Answer: Unemployment benefits
Solution : The correct answer is (a). Unemployment benefits
unemployment benefits are an example of an automatic stabilizer. Automatic stabilizers are government policies or programs that are designed to automatically stabilize the economy during periods of economic downturns or recessions.
Unemployment benefits provide financial assistance to individuals who have lost their jobs and are actively seeking employment. During economic downturns, when unemployment rates tend to rise, the number of individuals eligible for and receiving unemployment benefits increases. These benefits act as an automatic stabilizer because they help support individuals and families during times of economic hardship, thereby providing a stimulus to the economy.
Unemployment benefits help stabilize the economy by providing income to unemployed individuals, which can be used to meet their basic needs and maintain their consumption levels. This, in turn, helps to mitigate the negative impact of recessions on aggregate demand and can contribute to stabilizing the overall economy.
