The more government expenditure rises as national income falls, the greater will be the stabilising effect of the automatic stabiliser.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment benefits and progressive taxes, naturally increase government expenditure or reduce taxes as national income falls. This counteracts the economic downturn by injecting more money into the economy, thus stabilizing national income and reducing the severity of economic fluctuations.

The More Government Expenditure Rises as National Income Falls, the Greater