Automatic fiscal stabilizers ________ the impact of demand or supply shocks on the economy since government's net tax revenues ________ during booms and ________ during recessions.
A)magnify; increase; decrease
B)magnify; decrease; increase
C)dampen; increase; decrease
D)dampen; decrease; increase
E)do not affect; are constant; are constant

Question

Quizplus · Accepted Answer

Automatic fiscal stabilizers dampen the impact of demand or supply shocks on the economy since government's net tax revenues increase during booms and decrease during recessions, providing a stabilizing effect. Option A (magnify) and B (magnify) are incorrect as they suggest the stabilizers amplify shocks rather than dampening them. Option D (dampen; decrease; increase) is incorrect as it gets the direction of change for government's net tax revenues wrong. Option E (do not affect; are constant; are constant) is incorrect as it suggests that automatic fiscal stabilizers have no impact, which is not true.

Automatic Fiscal Stabilizers ________ the Impact of Demand or Supply