During a boom expansionary economy,public assistance payments and unemployment compensation payments automatically decrease,while income taxes automatically increase.Which of the following best describes the effect of these changes on aggregate demand?

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Quizplus · Accepted Answer

Public assistance and unemployment compensation are automatic stabilizers designed to kick in during economic downturns, providing support to those who have lost their jobs or are in need of financial assistance. By decreasing these payments during a boom, it reduces the amount of money available for spending, which would decrease aggregate demand. Conversely, income taxes increase during a boom, reducing the disposable income available for spending, which also decreases aggregate demand. Therefore, the effect of these changes on aggregate demand is that it will be less than it would be without these automatic stabilizers.

During a Boom Expansionary Economy,public Assistance Payments and Unemployment Compensation