Which of the following best describes the built-in stabilizers as they function in the United States?
A) The size of the multiplier varies inversely with the level of GDP.
B) Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
C) Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
D) Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Question

Quizplus · Accepted Answer

Built-in stabilizers in the United States, such as personal and corporate income taxes, and transfer payments like unemployment benefits, automatically adjust with the level of economic activity. As GDP rises, income tax collections increase due to higher incomes, and transfers and subsidies, such as unemployment benefits, decrease because fewer people are out of work. This helps to moderate the fluctuations in the economy.

Which of the Following Best Describes the Built-In Stabilizers as They