Which of the following is an automatic stabilizer that moves the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion?
A) Personal income tax revenues.
B) Corporate income tax revenues.
C) Unemployment benefits.
D) All of the above.

Question

Quizplus · Accepted Answer

Personal income tax revenues and corporate income tax revenues decrease during an economic contraction due to lower incomes and profits, while unemployment benefits increase as more people lose their jobs. These factors together lead to a decrease in government revenue and an increase in government spending, which moves the federal budget toward deficit. Conversely, during an economic expansion, personal and corporate income tax revenues increase due to higher incomes and profits, while unemployment benefits decrease as fewer people are unemployed. These factors lead to an increase in government revenue and a decrease in government spending, which moves the federal budget toward surplus. Therefore, all of the above are automatic stabilizers that move the federal budget toward deficit during an economic contraction and toward surplus during an economic expansion.

Which of the Following Is an Automatic Stabilizer That Moves