An example of automatic fiscal policy is when
A) Congress passes a law that raises tax rates.
B) tax revenues decrease as real GDP decreases.
C) Congress decides to cut government expenditure.
D) the president drafts a bill to reduce defense spending.

Question

Quizplus · Accepted Answer

Automatic fiscal policy is when government revenue and spending changes occur automatically, without the need for new legislation. When real GDP decreases, tax revenues also decrease due to lower incomes and production. This automatic decrease in revenue acts as a contractionary fiscal policy, which can help stabilize the economy during a recession.

An Example of Automatic Fiscal Policy Is When