CFA Practice Question

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CFA Practice Question

Which of the following is an example of an automatic stabilizer?

I. An increase in defense spending during an expansion
II. A decrease in social security benefits during a recession
III. An increase in welfare benefits during an expansion
IV. A decrease in unemployment benefits paid out during an expansion
V. An increase in taxes during a recession
Correct Answer: IV

An automatic stabilizer decreases spending during an expansion and increases spending during a contraction. These actions happen automatically, such as an increase in tax collections during an expansion.

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