Which of the following describes automatic stabilizers in economic policy?

Automatic stabilizers in economic policy refer to mechanisms that help stabilize the economy without the need for active government intervention or new legislation. This concept is rooted in a set of built-in fiscal policies that automatically adjust according to economic conditions, thereby moderating fluctuations in economic activity, particularly during periods of recession or economic downturns.

For example, during a recession, government transfer payments like unemployment benefits increase automatically due to higher claims, while tax revenues from individuals usually decrease as incomes fall. This automatic adjustment helps to support spending and stabilize GDP without requiring new laws or direct government action, making it a critical feature of a responsive economic framework.

In contrast, other aspects listed in the choices do not align with the defining characteristics of automatic stabilizers. The requirement for new laws corresponds more closely with discretionary fiscal policy, while cash transfer programs can be part of both automatic stabilizers and discretionary policies but do not intrinsically define them. Targeting solely business investments reflects a narrower focus that does not encompass the broader, consumer-oriented approach of automatic stabilizers.