Because of automatic stabilizers, when real GDP increases
A) government expenditures equal tax revenues.
B) government expenditures decrease and tax revenues increase.
C) government expenditures increase and tax revenues decrease.
D) the economy will automatically go to full employment.

Question

Quizplus · Accepted Answer

Automatic stabilizers are government programs that automatically adjust government spending and tax collections in response to changes in national income, with the goal of stabilizing the economy. When real GDP increases, tax revenues will also increase since people's incomes are higher. At the same time, government expenditures will decrease since fewer people will be eligible for automatic stabilizer programs like unemployment insurance. Therefore, government expenditures will decrease and tax revenues will increase, making B the correct choice.

Because of Automatic Stabilizers, When Real GDP Increases