Because the personal income tax is an automatic stabilizer,
A)inflationary gaps are impossible.
B)the budget deficit grows during a recession.
C)the deficit needed to cure a recessionary gap increases.
D)the structural deficit grows during a recession.
E)All of the above are correct.

Question

Quizplus · Accepted Answer

The personal income tax is an automatic stabilizer because it varies with individuals' incomes. During a recession, incomes generally decrease, leading to a decrease in tax revenue, which then results in an increase in the budget deficit. This helps stabilize the economy by injecting more money into it during times of low economic activity. Therefore, option B is correct. Options A, C, and D are incorrect because they suggest outcomes that are not in line with the functioning of automatic stabilizers.

Because the Personal Income Tax Is an Automatic Stabilizer