Which of the following is an automatic stabiliser in the fiscal system?
A. Discretionary increase in infrastructure spending
B. One-time stimulus package
C. Change in repo rate by the central bank
D. Progressive income tax structure
Answer: Option D
Solution (By JKSSB Mock Tests)
Progressive income taxes automatically increase the tax burden during expansions and reduce it during contractions, stabilising disposable income without new legislation.
Explanation:
The law of diminishing returns (or variable proportions) operates in the short run when one or more factors are fixed and additional units of a variable factor are added.
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