CA Foundation · Business Economics · Business Cycles
Which of the following is an automatic stabiliser that works to moderate business cycle fluctuations without any new government decision?
A progressive income tax system is an automatic stabiliser. Tax collections rise more than proportionately in booms and fall in recessions without fresh legislation, dampening swings in demand. Stimulus packages, repo rate changes and loan waivers are discretionary measures needing deliberate policy decisions.
- AA special stimulus package announced during a slowdown
- BA progressive income tax systemCorrect
- CA sudden change in the repo rate by the RBI
- DA one-time farm loan waiver
Explanation
Automatic stabilisers operate by built-in rules. Under progressive income tax, tax collections rise faster in booms, restraining demand, and fall in downturns, cushioning it. The other options require a discretionary decision by the government or RBI.
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