On a graph showing the influence of automatic stabilizers on the economy, tax revenues and real GDP have a(n):
A) direct relationship as shown by an upward-sloping line T.
B) direct relationship as shown by a downward-sloping line T.
C) inverse relationship as shown by an upward-sloping line T.
D) inverse relationship as shown by a downward-sloping line T.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as taxes, typically have a direct relationship with real GDP. As the economy grows and real GDP increases, tax revenues also increase due to higher incomes and consumption, which is represented by an upward-sloping line on a graph.

On a Graph Showing the Influence of Automatic Stabilizers on the Economy