Automatic stabilizers work because cyclical budget deficits and surpluses create injections and leakages that counteract the business cycle.

Question

Quizplus · Accepted Answer

Automatic stabilizers such as unemployment benefits and progressive income taxes are designed to increase government spending and decrease tax revenue during economic downturns, which creates injections into the economy. In contrast, during periods of economic expansion, decreased government spending and increased tax revenue create leakages from the economy, helping to prevent overheating and inflation.

Automatic Stabilizers Work Because Cyclical Budget Deficits and Surpluses Create