Automatic stabilizers will shift the government budget toward
A) a surplus during both expansions and contractions.
B) a deficit during both expansions and contractions.
C) a surplus during an expansion and a deficit during a contraction.
D) a surplus during a contraction and a deficit during an expansion.

Question

Quizplus · Accepted Answer

Automatic stabilizers such as unemployment benefits and progressive income taxes work automatically to increase government spending and decrease taxes during economic contractions, thus causing a budget deficit. Conversely, during economic expansions, they work to decrease government spending and increase taxes, thus causing a budget surplus. Therefore, the most accurate statement is that automatic stabilizers will shift the government budget toward a surplus during an expansion and a deficit during a contraction (choice C).

Automatic Stabilizers Will Shift the Government Budget Toward