The difference between personal disposable income and GDP declines during recessions and expands during boom times because
A) revenues collected by progressive income taxes climb faster than GDP during economic booms.
B) unemployment compensation payments and other transfer programs expand during recessions.
C) revenues collected by progressive income taxes fall faster than GDP during recessions.
D) unemployment compensation payments and other transfer programs contract during economic booms.
E) all of the above.

Question

Quizplus · Accepted Answer

During economic booms, progressive income taxes increase faster than GDP because higher incomes fall into higher tax brackets, increasing tax revenues more rapidly. During recessions, these tax revenues fall faster than GDP as incomes decrease. Additionally, unemployment compensation and other transfer programs expand during recessions to support those out of work, and contract during booms when fewer people need such support. Thus, all the options contribute to the described phenomenon, making E the correct answer.

The Difference Between Personal Disposable Income and GDP Declines During