A set of rules and regulations leading to a tax policy that is T=T,+t*GDP isa) countercyclicalb) stabilizes the economy in case of external shocks, hence called automaticstabilizer.nonea and ba but not bb but not a

Answered: A set of rules and regulations leading…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A set of rules and regulations leading to a tax policy that is T=T,+t*GDP is
a) countercyclical
b) stabilizes the economy in case of external shocks, hence called automatic
stabilizer.
none
a and b
a but not b
b but not a

Expert Solution

Step 1

Countercyclical policy: It is the policy used in order to reduces the change in business cycle , it can be done through expansionary or contractionary policy that is by reducing taxes and increasing government expenditure or it can be done by increasing taxes and reducing government expenditure.

Automatic stabilizer: It is the policy used for the improvement in the fluctuation in the economic activities , it can be done either through increasing and decreasing taxes based on the situation.

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