Praxis II Citizenship

Category - Economics

Which of the following is not an automatic stabilizer that typically occurs during a recession?
  1. Increase in the government deficit
  2. Increase in government spending
  3. Increase in tax revenue
  4. Increase in domestic purchases rather than imports
Explanation
Answer: C - Tax revenue does not increase automatically during a recession, so it is not an automatic stabilizer. Automatic stabilizers are economic changes that occur independently without explicit action by the government. Tax revenue automatically decreases during a recession, which is not stabilizing. As more workers face unemployment or reduced shifts during a recession, their income decreases, which causes their income taxes to decrease. Tax revenue could increase during a recession, but the government would have enact legislation to cause that to happen.
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