During an expansion, which of the following occur because of automatic stabilizers?
I. Income tax revenues tend to rise.
II. Government transfer payments tend to rise.
III. The government's budget deficit tends to fall or its budget surplus tends to rise.
IV. They tend to amplify the rise in real GDP.

Question

Quizplus · Accepted Answer

During an expansion, automatic stabilizers like progressive income taxes increase tax revenues (I) and reduce the budget deficit or increase the surplus (III) as incomes rise. Transfer payments (II) typically fall, not rise, and automatic stabilizers do not amplify GDP changes (IV); they moderate them.

During an Expansion, Which of the Following Occur Because of Automatic