If the economy is to have signiﬁcant built-in stability, then when real GDP increases, the tax revenues should
A) fall proportionately more than the change in GDP.
B) fall proportionately less than the change in GDP.
C) rise proportionately more than the change in GDP.
D) rise proportionately less than the change in GDP.

Question

Quizplus · Accepted Answer

If the economy has significant built-in stability, then tax revenues should rise proportionately more than the change in GDP. This indicates that the tax system is designed in such a way that tax collections automatically increase as the economy grows, providing a stabilizing force. This stability helps to prevent boom and bust cycles in the economy.

If the Economy Is to Have Signiﬁcant Built-In Stability, Then