If aggregate output is falling,
A)both b and e
B)tax revenue increases
C)automatic stabilizers will tend to increase the size of the deficit
D)automatic stabilizers will tend to decrease the size of the deficit
E)transfer payments decrease as fewer people become eligible for public assistance

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment insurance and progressive income taxes, tend to increase government spending and decrease government revenue during an economic downturn, which increases the size of the deficit. Therefore, if aggregate output is falling, automatic stabilizers would tend to increase the size of the deficit. Option A is incorrect as there is no information on what options b and e are. Option B is incorrect as falling aggregate output means lower tax revenues. Option D is incorrect as automatic stabilizers tend to increase the deficit during a downturn. Finally, option E is incorrect as transfer payments would tend to increase during an economic downturn, as more people become eligible for public assistance.

If Aggregate Output Is Falling