In a booming economy, fiscal policy automatically becomes _______ as tax rates _______ and welfare payments _______.
A) contractionary; rise; fall
B) expansionary; rise; fall
C) contractionary; fall; rise
D) expansionary; fall; rise

Question

Quizplus · Accepted Answer

In a booming economy, fiscal policy automatically becomes contractionary as tax revenues increase (due to higher incomes and profits, effectively making tax rates rise) and welfare payments decrease (since fewer people need assistance), without any deliberate policy changes. This helps to cool down the economy.

In a Booming Economy, Fiscal Policy Automatically Becomes _______ as Tax