As GDP falls, automatic stabilizers run the federal budget in a deficit direction.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment insurance and progressive income taxes, provide a safety net that automatically increases government spending and decreases tax revenue as the economy weakens. This leads to a budget deficit during economic downturns, which helps to stabilize the economy by providing additional spending power and reducing the severity of economic contractions.

As GDP Falls, Automatic Stabilizers Run the Federal Budget in a Deficit