All else equal, the presence of automatic stabilizers implies that budget deficits will _____ during recessions and _____ during expansions.

Question

Quizplus · Accepted Answer

Automatic stabilizers are economic policies and programs, such as unemployment benefits and progressive taxation, designed to automatically increase government spending or decrease tax revenues during economic downturns and decrease spending or increase revenues during expansions. This leads to larger budget deficits during recessions (as government spending increases or tax revenues fall) and smaller deficits (or larger surpluses) during expansions (as spending falls or tax revenues increase).

All Else Equal, the Presence of Automatic Stabilizers Implies That