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

Question

Quizplus · Accepted Answer

Automatic fiscal policy refers to the government's ability to automatically adjust tax rates and government spending in response to changes in the economy. When real GDP decreases, tax revenues will also decrease as people and businesses will have less income and profit to pay taxes on. At the same time, the government may increase expenditures in order to stimulate the economy, such as through unemployment benefits or infrastructure spending. Therefore, choice A is the correct option.

Because of Automatic Fiscal Policy, When Real GDP Decreases