Answer to Question #280406 in Macroeconomics for kika

Question

2. Federally funded student aid programs generally reduce benefits by $1 for every $1 that recipients earn. Do such programs represent government purchases or transfer payments? Are they automatic stabilizers?

Answer 1

2.This is the program for helping the students; hence, it works as student aid wherein it is considered as the transfer payments.

As the transfer payment decreases, the GDP increases. It is because the expansion in the economic activity will make greater business open doors for the students. So this spending in the economy falls and the GDP rises, and it is considered as automatic stabilizers.