Assume the economy is in a recession and has a budget deficit.Ceteris paribus,if the economy starts expanding,automatic stabilizers will cause
A)A decrease in tax revenues.
B)An increase in government spending.
C)A decrease in the budget deficit.

Question

Quizplus · Accepted Answer

Automatic stabilizers refer to government programs that automatically expand during economic downturns and contract during economic expansions. These stabilizers include progressive income taxes, unemployment benefits, and social welfare programs. Therefore, when the economy starts expanding, the automatic stabilizers, such as increased tax revenues and decreased government spending on unemployment benefits, will cause a decrease in the budget deficit.

Assume the Economy Is in a Recession and Has a Budget