CA Foundation · Business Economics · Business Cycles
Which of the following is an example of an automatic stabiliser that helps moderate business cycle fluctuations without any fresh government decision?
A progressive income tax system is an automatic stabiliser. In a downturn, incomes fall and tax collections decline more than proportionately, which supports disposable income and demand without any new policy decision. Stimulus packages, repo rate changes and support price hikes are discretionary actions, not built-in stabilisers.
- AA mid-year announcement of a new stimulus package
- BA progressive income tax system whose revenue falls in a recessionCorrect
- CA change in the repo rate by the monetary policy committee
- DA one-time increase in the minimum support price by the Cabinet
Explanation
Automatic stabilisers work through built-in rules. Under progressive taxes, incomes fall in a recession so tax collections fall more than proportionately, cushioning disposable income. The other options require deliberate discretionary decisions by the government or central bank.
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