Income taxes in Canada can be considered to be automatic stabilizers because tax
A)revenues increase when income increases, thereby offsetting some of the increase in aggregate demand.
B)revenues are changed through discretionary fiscal policy to keep the budget balanced.
C)structures can be changed when the Minister of Finance brings down a budget.
D)revenues decrease when income increases, thereby intensifying the increase in aggregate demand.
E)revenues are changed through discretionary fiscal policy to create surpluses in recessions.

Question

Quizplus · Accepted Answer

Income taxes in Canada can be considered to be automatic stabilizers because they increase when income increases, which helps to reduce the increase in aggregate demand. This happens because as income increases, people have more disposable income, and therefore may spend more, which can drive up demand and potentially lead to inflation. However, higher income also means higher taxes, which reduces the amount of disposable income available to spend. As a result, higher taxes can help to moderate increases in aggregate demand and stabilize the economy.

Income Taxes in Canada Can Be Considered to Be Automatic