Assume the economy is in a recession and has a budget deficit.Ceteris paribus,if the economy begins to expand,automatic stabilizers will cause:
A) A decrease in tax revenues.
B) An increase in government spending.
C) A decrease in the budget deficit.
D) A decrease in interest rates.

Question

Quizplus · Accepted Answer

Automatic stabilizers work to reduce the severity of economic fluctuations without the need for explicit government intervention. During an economic expansion, tax revenues increase because individuals and businesses earn more, and government spending on social welfare programs (like unemployment benefits) decreases as more people find jobs. These changes naturally lead to a decrease in the budget deficit, making option C correct.

Assume the Economy Is in a Recession and Has a Budget