Government tax revenue rises and falls with the business cycle as:

Question

Quizplus · Accepted Answer

Government tax revenue is an example of an automatic stabilizer, meaning that it helps to stabilize the economy during fluctuations in the business cycle. As incomes fall during a recession, tax revenue declines, which helps to reduce the impact of the recession on individuals and businesses. Conversely, during an economic expansion, tax revenue increases as incomes rise, helping to prevent the economy from overheating. Automatic stabilizers function without the need for discretionary fiscal policy actions by the government.

Government Tax Revenue Rises and Falls with the Business Cycle