The fact that tax receipts fall during a recession:
A)makes the multiplier stronger.
B)has no impact on the multiplier.
C)reduces the adverse effect of the initial fall in aggregate demand.
D)acts as an automatic contractionary fiscal policy.

Question

Quizplus · Accepted Answer

During a recession, tax receipts fall, which can help stabilize the economy by leaving more money in the hands of consumers and businesses, thereby reducing the adverse effect of the initial fall in aggregate demand. This acts as an automatic stabilizer.

The Fact That Tax Receipts Fall During a Recession