The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession are examples of
A) discretionary monetary policy.
B) the discretionary multiplier effect.
C) discretionary fiscal policy.
D) automatic stabilizers.

Question

Quizplus · Accepted Answer

The increase in taxes collected during an expansion and the decrease during a recession are examples of automatic stabilizers. Automatic stabilizers are features built into the tax and transfer system that automatically stabilize disposable income without any additional legislative action. This is different from discretionary fiscal policy, which involves intentional changes made by the government to stimulate or contract the economy.

The Increase in the Amount That the Government Collects in Taxes