The federal budget deficit acts as an automatic stabilizer because
A)government tax revenues decrease during a recession.
B)unemployment insurance payments decrease during a recession.
C)food stamp payments increase during expansionary periods.
D)Medicaid payments increase during expansionary periods.

Question

Quizplus · Accepted Answer

During a recession, tax revenues tend to decrease because people and businesses are making less money and therefore paying less in taxes. This decrease in tax revenue increases the federal budget deficit, but it also provides a stimulus to the economy through government spending. This makes the federal budget deficit act as an automatic stabilizer, helping to combat the economic downturn.

The Federal Budget Deficit Acts as an Automatic Stabilizer Because