Assume an economy has automatic stabilizers in place that include a progressive tax structure and a transfer payment system.Then in a period of high economic growth and high inflation, we would expect:
A)tax revenues to fall and unemployment compensation to rise.
B)average tax rates and welfare payments to decline.
C)the national debt to become larger.
D)average tax rates and government revenues to rise.
E)government spending on social security benefits to rise.

Question

Quizplus · Accepted Answer

In a period of high economic growth, individuals and businesses earn higher incomes and pay higher taxes, which increases government revenues. The progressive tax structure also leads to higher average tax rates for those with higher incomes, further increasing government revenues. Therefore, we would expect average tax rates and government revenues to rise. The transfer payment system may still provide a safety net for those who are unemployed or underemployed, but we would not necessarily expect unemployment compensation to rise in a period of high economic growth. The national debt may or may not become larger, depending on the specific policies implemented by the government. Similarly, government spending on social security benefits may or may not rise depending on the retirement age, eligibility criteria, and other factors.

Assume an Economy Has Automatic Stabilizers in Place That Include