What are automatic stabilizers?

• A. Deliberate fiscal measures enacted by the government in response to recessions or booms that require new legislation.
• B. Monetary policy tools used by central banks that automatically adjust interest rates to stabilize inflation and output.
• C. Long-term supply-side reforms aimed at increasing potential GDP, such as deregulation and permanent tax cuts.
• D. Built-in government tax and spending rules that automatically change with the business cycle to dampen output fluctuations without new legislation (e.g., progressive taxes, unemployment insurance).

Answer: (D)