Built-in stability means that
A) an annually balanced budget will offset the procyclical tendencies created by state and local ﬁnance and thereby stabilize the economy.
B) with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deﬁcit or produce a budget surplus, while a decline in income will result in a deﬁcit or a lower
Budget surplus.
C) Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity.
D) government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

Question

Quizplus · Accepted Answer

Built-in stability refers to the automatic adjustment of government budgets in response to changes in economic activity, without the need for new legislation. As domestic income rises, tax revenues increase and/or expenditures decrease, leading to a reduced deficit or a surplus. Conversely, a decline in income results in higher deficits or reduced surpluses, due to lower tax revenues and/or higher expenditures. This process stabilizes the economy by acting counter-cyclically, without the need for explicit fiscal policy changes.

Built-In Stability Means That