If the economy is to have automatic stabilizers, when real GDP rises:
A)tax revenues should fall.
B)tax revenues should rise.
C)government spending should rise.
D)government spending should fall.

Question

Quizplus · Accepted Answer

When real GDP rises, tax revenues should also rise due to the progressive income tax system in place in most countries. As people's incomes increase, they move into higher tax brackets and therefore pay more taxes. This increase in tax revenue acts as an automatic stabilizer, helping to mitigate inflationary pressures that arise from a growing economy.

If the Economy Is to Have Automatic Stabilizers, When Real