Income taxes and transfer payments

Question

Quizplus · Accepted Answer

Income taxes and transfer payments act like economic shock absorbers and stabilize fluctuations in income. For example, during a recession, transfer payments such as unemployment benefits provide support to individuals who have lost their jobs and are struggling to make ends meet. This helps to prevent a further decline in consumer spending and overall economic activity. On the other hand, during times of strong economic growth, income taxes can be used to reduce inflationary pressures by reducing the amount of disposable income available to consumers.

Income Taxes and Transfer Payments