How are transfer payments, such as welfare benefits, affected during economic contractions?
A) Transfer payments automatically increase, reducing incomes further.
B) Transfer payments automatically increase, thus reducing the impact of the contraction on disposable income.
C) Transfer payments automatically decrease, because tax revenues fall and welfare benefits are no longer affordable.
D) Transfer payments automatically decrease, as a discretionary move on the part of Parliament to stimulate expansion.

Question

How are transfer payments, such as welfare benefits, affected during economic contractions?  
A) Transfer payments automatically increase, reducing incomes further. 
B) Transfer payments automatically increase, thus reducing the impact of the contraction on disposable income. 
C) Transfer payments automatically decrease, because tax revenues fall and welfare benefits are no longer affordable. 
D) Transfer payments automatically decrease, as a discretionary move on the part of Parliament to stimulate expansion.

Quizplus · Accepted Answer

During economic contractions, transfer payments such as welfare benefits automatically increase, as a result of higher unemployment and reduced incomes. This helps to reduce the impact of the contraction on disposable income and support households in need. This is known as automatic stabilizers, which are designed to stabilize the economy without the need for discretionary policy actions.

How Are Transfer Payments, Such as Welfare Benefits, Affected During