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In what ways does the federal budget serve as an automatic stabilizer for the economy?

A.

During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits rise. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits fall. Both of these occur automatically and both effects help to stabilize aggregate demand.

B.

During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these require government action to stabilize aggregate demand.

C.

During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these occur automatically and both effects help to stabilize aggregate demand.

D.

During a recession, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. During an expansion, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. Both of these occur automatically and both effects help to stabilize aggregate demand

Sagot :

A - During a recession there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an expansion there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these occur automatically and both serve to stabilize aggregate demand.

One of economics' most terrifying terms is "recession." A prolonged period of significant decline in overall economic activity is known as a recession. Real income frequently decreases and the unemployment rate typically rises during recessions. Additionally, numerous other unfortunate events can occur when people lose their jobs and income. Therefore, people's lives can be permanently altered by recessions.

When things go wrong, how does the economy get back on track? By influencing the economy through its fiscal policy, the government can play a role. Fiscal policy is how the government responds to economic conditions by taxing and spending.

The government can alter the amount of money spent in the economy by changing the tax rate because taxes lower income and income influences spending.

To know more about  government expenditures visit

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