Due to automatic stabilizers, when income decreases, government transfer spending:
A)increases and tax revenues decrease.
B)decreases and tax revenues increase.
C)and tax revenues decrease.
D)and tax revenues increase.

Question

Quizplus · Accepted Answer

Automatic stabilizers are government programs that automatically increase spending or decrease taxes in response to economic downturns. When income decreases, automatic stabilizers kick in, resulting in an increase in government transfer spending (such as unemployment benefits, food stamps, and other welfare programs) to support those who have lost their jobs or have reduced income. At the same time, tax revenues tend to decrease as people earn less income and pay less in taxes. Therefore, the correct answer is A.

Due to Automatic Stabilizers, When Income Decreases, Government Transfer Spending