If aggregate output is falling,_____.
A)federal budget deficit decreases
B)tax revenue increases
C)automatic stabilizers will tend to increase the size of the deficit
D)automatic stabilizers will tend to decrease the size of the deficit
E)transfer payments decrease as fewer people become eligible for public assistance

Question

Quizplus · Accepted Answer

When aggregate output is falling, it indicates a downturn in the economy. Automatic stabilizers, such as unemployment benefits, social security, and progressive taxation, tend to increase the size of the deficit. This is because as households and businesses earn less income, they pay less in taxes, and the government spends more on transfer payments, such as unemployment benefits. Therefore, the federal budget deficit tends to increase during a recession.

If Aggregate Output Is Falling,_____