What is the effect of an automatic stabilizer, such as a progressive tax system, in relation to government spending?
A) It keeps taxes and government spending in a constant ratio to each other throughout the business cycle.
B) It increases taxes relative to government spending during contractions, and decreases taxes in expansions.
C) It decreases taxes relative to government spending during contractions, and increases taxes in expansions.
D) It increases taxes relative to government spending throughout the business cycle.

Question

What is the effect of an automatic stabilizer, such as a progressive tax system, in relation to government spending?  
A) It keeps taxes and government spending in a constant ratio to each other throughout the business cycle. 
B) It increases taxes relative to government spending during contractions, and decreases taxes in expansions. 
C) It decreases taxes relative to government spending during contractions, and increases taxes in expansions. 
D) It increases taxes relative to government spending throughout the business cycle.

Quizplus · Accepted Answer

Automatic stabilizers, like a progressive tax system, decrease taxes relative to government spending during economic contractions to support demand, and increase taxes relative to spending during expansions to cool the economy.

What Is the Effect of an Automatic Stabilizer, Such as a Progressive