Features of economy that reduce its sensitivity to shocks

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Reference no: EM131115097

Consider the economies of Kimberlei and Clarkistan, which are identical except that the multiplier in Kimberlei is smaller than that in Clarkistan.

This means that Kimberlei's GDP is _______ Clarkistan's GDP to fluctuations in the components of total spending.

A) less sensitive than

B) equally sensitive as

C) more sensitive than

Features of the economy that reduce its sensitivity to shocks are called automatic stabilizers.

Suppose again that the economies of Kimberlei and Clarkistan are identical except that Kimberlei has instituted personal income tax, whereas Clarkistan hasn't.

Clarkistan's economy is (more, less) sensititve to fluctuations in GDP than Kimberlei's economy. This is because the personal income tax has (increase or reduced) kimerleis multiplier.

Reference no: EM131115097

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