1. Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy's built-in stability?
2. Define the standardized budget, explain its significance, and state why it may differ from the actual budget. Suppose the full-employment, noninflationary level of real output is GDP 3 (not GDP2) in the economy depicted in Figure 30.3. If the economy is operating at GDP 2, instead of GDP 3, what is the status of its standardized budget? The status of its current fiscal policy? What change in fiscal policy would you recommend? How would you accomplish that in terms of the G and T lines in the figure?
