The existence of automatic stabilizers means that government spending will automatically _____ during a recession and automatically _____ during an economic boom, whereas government revenue will automatically _____ during a recession and automatically _____ during an economic boom.

Question

Quizplus · Accepted Answer

Automatic stabilizers are the fiscal policies that help to stabilize economic activity without any action being taken by the government. Automatic stabilizers increase government spending during a recession and decrease government spending during an economic boom, which means the correct option is B. During a recession, government revenue automatically decreases due to lower tax revenues collected from lower economic activity, and during an economic boom, government revenue automatically increases due to higher tax revenues collected from economic growth.

The Existence of Automatic Stabilizers Means That Government Spending Will