Answered

How do automatic stabilizers work during times of an economic downturn?

A. Transfer payments will increase, and income tax revenues will decrease.
B. Transfer payments and income tax revenues will increase.
C. Transfer payments will decrease, and income tax revenues will remain the same.
D. Transfer payments will remain the same, and income tax revenues will decrease.
E. Transfer payments and income tax revenues will decrease.



Answer :

GinnyAnswer

Final answer:

Automatic stabilizers increase transfer payments and decrease income tax revenues during economic downturns to support households.


Explanation:

Automatic stabilizers refer to certain government expenditure and taxation policies that help mitigate the impact of economic downturns on individuals. During times of an economic downturn, automatic stabilizers work by increasing transfer payments and decreasing income tax revenues. This mechanism helps maintain disposable personal income and cushion households from the effects of the recession.


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