When an economy dips into recession, automatic stabilizers will:
A) enlarge the budget deficit (or reduce the surplus).
B) reduce the budget deficit (or increase the surplus).
C) ensure that the budget remains in balance.
D) expand the supply of money and, thereby, stimulate aggregate demand.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment benefits and progressive taxation, increase government spending and decrease revenues during a recession, which leads to an enlargement of the budget deficit or a reduction in the surplus. This helps to offset the decrease in private sector demand and stabilize the economy.

When an Economy Dips into Recession, Automatic Stabilizers Will