Because of automatic stabilizers, government budget deficits are
A) positive during both expansions and contractions.
B) negative during both expansions and contractions.
C) zero if averaged out over the entire business cycle.
D) larger during expansions and smaller during contractions.
E) smaller during expansions and larger during contractions.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment benefits and progressive taxes, naturally increase government spending and decrease tax revenues during economic contractions, leading to larger deficits. Conversely, during expansions, these stabilizers reduce spending and increase revenues, resulting in smaller deficits.

Because of Automatic Stabilizers, Government Budget Deficits Are