Refer to the diagram. The degree of built-in stability in the economy could be increased by
A) reducing government purchases so that the purchases line shifts downward but parallel to its present position.
B) changing the tax system so that the tax line is shifted downward but parallel to its present position.
C) changing the tax system so that the tax line has a greater slope.
D) altering the government expenditures line so that it has a positive slope.

Question

Refer to the diagram. The degree of built-in stability in the economy could be increased by
A) reducing government purchases so that the purchases line shifts downward but parallel to its present position. 
B) changing the tax system so that the tax line is shifted downward but parallel to its present position. 
C) changing the tax system so that the tax line has a greater slope. 
D) altering the government expenditures line so that it has a positive slope.

Quizplus · Accepted Answer

Increasing the slope of the tax line would increase the degree of built-in stability in the economy by making the tax system more responsive to changes in income, which in turn would help to stabilize aggregate demand. A steeper tax line would mean that a greater proportion of any given income increase would be taxed, reducing the size of any subsequent increase in consumption and helping to mitigate inflationary pressures. Reducing government purchases (A), shifting the tax line downward without changing its slope (B), or altering the government expenditure line to have a positive slope (D) would not necessarily increase the degree of built-in stability in the economy.

Refer to the Diagram