Automatic stabilizers were clearly in evidence during the recession of 2007-2009 as
A) tax revenues increased.
B) tax revenues decreased.
C) transfer payments decreased.
D) tax revenues and transfer payments both decreased.

Question

Quizplus · Accepted Answer

Automatic stabilizers are designed to reduce the impact of economic fluctuations on individuals and firms without the need for explicit government actions. One of the key automatic stabilizers is the progressive tax system. During a recession, incomes and profits tend to decline, which in turn, leads to a decrease in tax revenue for the government. This decrease in tax revenue acts as an automatic stabilizer, helping to offset some of the economic contraction. Therefore, tax revenues decreased during the recession of 2007-2009, making option B the correct choice. Transfer payments, however, tend to increase during a recession, as individuals become unemployed and qualify for unemployment benefits or other social welfare programs.

Automatic Stabilizers Were Clearly in Evidence During the Recession of 2007-2009