Automatic stabilizers lead to changes in taxation and government spending as eco

Question

Automatic stabilizers lead to changes in taxation and government spending as economic output varies. How do automatic stabilizers impact tax revenue and government spending during a recession? Tax revenue will and government spending will Suppose that the government is required to balance the budget. Which of the following is an appropriate discretionary approach during a recession and what effect would it have to the economy? Cut government spending to equal tax revenue possibly magnifying the effects of a recession. Cut taxes to encourage consumer spending which would minimize the effects of the recession. Invest in public infrastructure that promotes employment and stimulates the economy. Increase government spending to stimulate the o economy causing an increase in overall aggregate w demand.

Explanation / Answer

Tax revenue increases and government spending will increase.

The appropriate discretionary approach during a recession and effects that would have to the economy cut government spending to equal ta revenue possibly magnifying the effects of a recession.

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