Which of the following is most likely to be described as an automatic fiscal policy stabilizer? A) Increase in government spending on defense. B) Cuts in government spending on interstate highways. C) Cuts in the Federal Funds target rate. D) A fixed income tax rate. How is D correct? Since induced taxes are part of automatic fiscal policy stabilizer, having marginal tax brackets instead of fixed income tax rate helps.
I think this is a poor practice question, primarily due to A, B and C not even being automatic phenomenon, but also D could be a bit more specific. So three automatic stabilizers are 1) progressive personal income taxes 2) corporate profit taxes 3) unemployment compensation But then again, maybe this is similar to a real exam question in that sometimes you just have to select the least terrible response.