Automatic Stabilisers (MCQ Revision Question)

Here is a question asking when automatic stabilisers in the macroeconomy will be more effective.

Automatic stabilisers are fiscal changes that happen as an economy moves through different stages of the business cycle:

• E.g. a fall in tax revenues from the circular flow in a recession
• E.g. a rise in welfare spending injected into the circular flow during  a downturn

1. Higher income tax rates mean that the government takes more tax revenue out of the economy when real incomes and employment are expanding
2. Increased unemployment benefit rates mean that out of work incomes will be more generous for people when they lose their job in a recession