Question

When the economy is experiencing an expansionan expansion automatic stabilizers will​ cause:

A. transfer payments to increase and tax revenues to increase.
B. transfer payments and tax revenues to be unaffected.
C. transfer payments to decrease and tax revenues to decrease.
D. transfer payments to increase and tax revenues to increase.

Answer 1

The transfer payments to decrease and tax revenues to increase.

Step-by-step explanation:

An automatic stabilizer is a fiscal policy tool that is used to correct the fluctuations in the economy through its normal working without any further government intervention. In case of expansion it increases taxes and reduces government spending.

An increase in the tax rates will increase the tax revenues of the government. At the same time, a reduction in government spending will decrease the transfer payments paid by the government.