In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

Question

Quizplus · Accepted Answer

An increase in the unemployment rate results in fewer people earning income and paying taxes, which cuts tax revenues. At the same time, the government typically spends more on safety net programs such as unemployment insurance and Medicaid when unemployment rises, which raises expenditures. Therefore, choice A is the correct answer.

In the US Economy, the Effect on Federal Tax Revenues and Spending