An automatic stabilizer that works when the economy contracts is:
A)a rise in tax receipts.
B)a fall in government purchases.
C)a discretionary decrease in government purchases.
D)a rise in government transfers as more people receive unemployment insurance benefits.

Question

Quizplus · Accepted Answer

An automatic stabilizer that works when the economy contracts is a rise in government transfers as more people receive unemployment insurance benefits. This is because as unemployment increases during a recession, more people become eligible for and receive unemployment insurance benefits, which in turn increases government transfers. This increase in transfers helps to mitigate the negative effects of the recession on individuals and helps to stabilize the economy overall.

An Automatic Stabilizer That Works When the Economy Contracts Is