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

Personal income tax is an automatic stabilizer because during a recession, personal incomes decrease and therefore, people pay less income tax. This decrease in tax revenue automatically increases the budget deficit, which helps to offset some of the negative effects of the recession.

Because the Personal Income Tax Is an Automatic Stabilizer