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Chapter 30: Q.46 (page 743)

Is Medicaid (federal government aid to low income families and individuals) an automatic stabilizer?

Short Answer

Expert verified

Yes, Medicaid is an automatic stabilizer.

Step by step solution

01

Step 1.; Concept of fiscal policy.

Fiscal policy is the process through which the government monitors its tax rate and makes adjustments in expenditure levels for the benefit of the nation and the impact of one's economy. As an instance of fiscal policy, we may point to tax cuts and increased government expenditure on welfare.

02

Explanation of final answer.

Because unemployment rises during a recession, aggregate demand will decline. The amount of income of the population would reduce as the unemployment rate rises. As a result, many more families will fall into the low-income category, resulting in an increase in government spending on programs like Medicaid. As a result, Medicaid might be considered an automatic stabilizer.

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Most popular questions from this chapter

What would happen if contractionary fiscal policy were implemented during an economic boom but, due to lag,

it did not take effect until the economy slipped into recession?

In a booming economy, is the federal government more likely to run surpluses or deficits? What are the various factors at play?

What is the benefit of having state and local taxes on income instead of collecting all such taxes at the federal level?

Why do automatic stabilizers function “automatically?”

What are some practical weaknesses of discretionary fiscal policy?
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