The automatic stabilizers (LO3) a) help smooth out the business cycle b) make the business cycle worse c) eliminate the business cycle

Automatic stabilizers are economic policies and programs designed to offset fluctuations in an economy's growth without the need for additional government intervention. They are considered "automatic" because they respond to changes in fiscal conditions without any manual adjustment by the government. Examples of automatic stabilizers include unemployment insurance, progressive taxation, and social welfare programs.

The business cycle refers to the fluctuations in economic activity over time. It is characterized by periods of expansion (economic growth) and periods of contraction (economic decline). The business cycle has four phases: expansion, peak, contraction, and trough. Understanding the business cycle is crucial in assessing the role of automatic stabilizers in the economy.

Automatic stabilizers work by counteracting the effects of the business cycle. During an economic expansion, automatic stabilizers help to prevent overheating by withdrawing money from the economy in the form of increased taxes and a reduced need for social welfare programs. In contrast, during an economic contraction (recession), automatic stabilizers help to stimulate growth by injecting money into the economy through increased social welfare spending and reduced tax burdens. In this way, automatic stabilizers act as shock absorbers, helping to reduce the severity of economic fluctuations without the need for direct government intervention.

Based on our understanding of automatic stabilizers and their role in the business cycle, we can now choose the correct answer from the given options. a) Automatic stabilizers help smooth out the business cycle - This statement aligns with our analysis of how automatic stabilizers counteract the effects of the business cycle. b) Automatic stabilizers make the business cycle worse - This statement is incorrect, as automatic stabilizers work to reduce the severity of economic fluctuations. c) Automatic stabilizers eliminate the business cycle - This statement is also incorrect, as while automatic stabilizers can help to reduce the severity of the business cycle, they do not eliminate it completely. Therefore, the correct answer is: \(a)\) Automatic stabilizers help smooth out the business cycle.