During economic recessions, automatic stabilizers work to ____ government spending and ____ government revenues ?
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Answer: C. increase; decrease
Explanation
During recessions, automatic stabilizers increase government spending (like unemployment benefits) and decrease tax revenues. Economic downturns automatically trigger higher transfer payments while simultaneously reducing income and sales tax collections. These built-in fiscal mechanisms counteract falling private demand without requiring new legislative action. Automatic stabilizers are structural features of government budgets that smooth out business cycle fluctuations. Progressive tax systems collect less revenue as employment and corporate profits decline during a recession. Social welfare programs naturally absorb more beneficiaries when economic activity slows down significantly.
Governments rely on these mechanisms to provide immediate financial relief to affected citizens during crises. Automatic stabilizers help prevent minor economic contractions from turning into severe, prolonged depressions. Fiscal policy administrators monitor these budgetary shifts to gauge the depth of an ongoing recession. Decreasing spending during a recession would worsen the economic contraction rather than stabilize output. Increasing tax revenues during economic downturns would further reduce household disposable income and consumption. A combination of decreased spending and increased revenue describes contractionary fiscal policy rather than stabilization.
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