When the economy begins to slip into a recession,the automatic stabilizers cause

A) transfer payments to increase and tax collections to decline.
B) tax rates to increase so that tax revenues will remain relatively stable.
C) interest rates to decline.
D) a movement toward a budget surplus.
E) the budget deficit to get smaller.

Question

Lauren Samaniego · Accepted Answer

Final Answer : A, Explanation :  When the economy slips into a recession, incomes and employment levels decrease, which leads to a decrease in tax collections and an increase in transfer payments such as unemployment benefits. This is known as the automatic stabilizers, as they help to stabilize the economy during a downturn. Therefore, choice A is the correct answer. Choice B is incorrect, as increasing tax rates during a recession would further decrease consumer spending and worsen the recession. Choice C is incorrect; interest rates are typically adjusted by the Federal Reserve to combat inflation or to stimulate economic growth, not to address recessions. Choice D is incorrect, as the government typically runs a budget deficit during a recession to provide fiscal stimulus for the economy. Choice E is also incorrect, as the budget deficit typically increases during a recession, not decreases.

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