Final answer:
During expansions, automatic stabilizers make government expenditures rise, and taxes fall. During economic expansions, automatic stabilizers result in increased government expenditures and higher tax revenue as incomes rise and fewer people need welfare support. The correct answer is C.
Step-by-step explanation:
During expansions, automatic stabilizers make government expenditures rise, and taxes fall. Automatic stabilizers are built-in features of the fiscal system that automatically respond to changes in the economy. When there is an expansion, automatic stabilizers help stimulate the economy by increasing government spending on programs like unemployment benefits and welfare, while reducing the amount of taxes owed. These stabilizers play a role in maintaining stability and preventing large fluctuations in the economy.
During economic expansions, automatic stabilizers result in increased government expenditures and higher tax revenue as incomes rise and fewer people need welfare support.
During expansions, automatic stabilizers lead to increased government expenditures and a rise in taxes as the economy grows. As personal incomes and corporate profits increase due to stronger aggregate demand, more taxes are collected automatically. Simultaneously, fewer people require government assistance because employment levels are higher, which typically reduces government spending on unemployment benefits and welfare. However, during a period of economic expansion, overall government spending may still increase for various reasons even if spending on social safety nets decreases. Hence, the correct answer to the student's question is B. and taxes rise.