Because of the automatic stabilisers, a decline in the level of economic activity will cause:
A) an increase in tax revenues collected.
B) a decrease in government expenditures.
C) a smaller budget deficit.
D) an increase in welfare payments.

Question

Quizplus · Accepted Answer

Automatic stabilizers are government programs or policies that are designed to automatically offset fluctuations in a nation's economic activity. In times of declining economic activity, such as a recession, individuals and businesses may become unemployed or experience reduced incomes, leading to an increased demand for welfare and other government support programs. This increase in demand for welfare payments represents an automatic stabilizer, as it helps to compensate for the loss of economic activity and stabilizes the economy by ensuring that individuals have access to the resources they need to make ends meet. Therefore, a decline in economic activity would cause an increase in welfare payments, making option D the correct answer. The other three choices are not consistent with automatic stabilizers - a decline in economic activity would typically lead to a decrease in tax revenues collected and an increase in government expenditures and budget deficits, not a smaller budget deficit or a decrease in government expenditures.

Because of the Automatic Stabilisers, a Decline in the Level