The effect of automatic stabilizers on the business cycle is to:
A)make upswings larger and downswings smaller.
B)make upswings smaller and downswings larger.
C)make both upswings and downswings smaller.
D)eliminate fiscal drag.
E)make both upswings and downswings larger.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment benefits and progressive taxation, help to moderate the fluctuations of the business cycle by increasing government spending or decreasing taxes during economic downturns (making downswings smaller) and decreasing government spending or increasing taxes during economic upturns (making upswings smaller). This results in a smoothing effect on the economy, making both upswings and downswings less severe.

The Effect of Automatic Stabilizers on the Business Cycle Is