Which one of the following functions as an automatic stabilizer in the context of fiscal and monetary policies of an economy?
Personal income tax
Reverse repo rate of bank
Open market operation
Bond price
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UPSC CAPF – 2021
Automatic stabilizers are government programs or policies that counteract the business cycle automatically. During an economic downturn, they stimulate the economy by increasing spending or reducing taxes (e.g., unemployment benefits, progressive income tax). During an upturn, they restrain the economy by decreasing spending or increasing taxes.