Which of the following statements best describes automatic stabilizers as they function in Canada?
A)The size of the spending multiplier varies inversely with the level of GDP.
B)Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises.
C)Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
D)Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
E)The size of the spending multiplier varies directly with the level of GDP.

Question

Quizplus · Accepted Answer

Automatic stabilizers in Canada work by automatically increasing personal and corporate income tax collections as GDP rises, which helps to prevent inflation. At the same time, transfers and subsidies automatically decline as GDP rises, which helps to prevent the economy from overheating. Therefore, Option D is the best choice as it accurately describes how automatic stabilizers function in Canada.

Which of the Following Statements Best Describes Automatic Stabilizers as They