When an economy dips into recession, automatic stabilizers will tend to
A) enlarge the budget deficit (or reduce the surplus).
B) reduce the budget deficit (or increase the surplus).
C) ensure that the budget remains in balance.
D) expand the supply of money and, thereby, stimulate aggregate demand.

Question

Quizplus · Accepted Answer

Automatic stabilizers, such as unemployment insurance and welfare programs, increase government spending without any legislative action during a recession. This increase in government spending leads to an increase in the budget deficit (or a reduction in the surplus), which helps to stimulate the economy and mitigate the effects of the recession.

When an Economy Dips into Recession, Automatic Stabilizers Will Tend