Personal income tax revenue and transfer payments act as automatic stabilisers because they fluctuate over the course of the business cycle.

Question

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Personal income tax revenue tends to decrease during economic downturns as people earn less income and therefore pay less taxes, while transfer payments such as unemployment benefits tend to increase as more people become unemployed. These changes in revenue and payments help to stabilize the economy by providing a counter-cyclical stimulus during times of recession and reducing inflationary pressures during times of expansion.

Personal Income Tax Revenue and Transfer Payments Act as Automatic