An example of automatic fiscal policy is when
A) tax revenues decrease as real GDP decreases.
B) Congress passes a law that raises tax rates.
C) Congress decides to cut government expenditure.
D) the president drafts a bill to reduce defense spending.

Question

Quizplus · Accepted Answer

Automatic fiscal policies are built into the structure of federal taxes and spending. As real GDP decreases, tax revenues automatically decrease because individuals and businesses earn less money and thus pay less in taxes, without any legislative action required. This helps to stabilize the economy by automatically providing a fiscal stimulus during economic downturns.

An Example of Automatic Fiscal Policy Is When