During a recession,total welfare payments and employment insurance payments automatically increase,while income taxes automatically decrease.Which of the following best describes the effect of these changes on aggregate demand?

Question

Quizplus · Accepted Answer

The automatic stabilizers of increased welfare and employment insurance payments and decreased income taxes serve to increase disposable income for households. This increased disposable income leads to an increase in consumption expenditure, which increases aggregate demand. Therefore, the effect of these changes on aggregate demand is greater than it would be without the automatic stabilizers, meaning that aggregate demand will be more than it would be without these stabilizers.

During a Recession,total Welfare Payments and Employment Insurance Payments Automatically