The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of A) automatic stabilizers. B) discretionary fiscal policy. C) discretionary monetary policy. D) automatic monetary policy.
These are necessary adjustments that are dependent on the state of the economy at particular times. An expanding economy is an economy in growth, there is a general feeling of stability and there is the mobility of funds around. Due to the presence and indication of growth, there is an increase in the amount of profits or gains made by the economy in general. Hence, government can decide to task more through tax.
However, in periods when there are indicators of an ailing economy, there should be a downward review of tax and the economy is weak at this state. Using the old taxing scheme during the good economy for now would result in an outcome that might further hurt business owners and push the economy more downwards.
Automatic stabilizers are just the mechanism through which the taxation at different times is adjusted
Automatic stabilizers are referred to as the kind of the fiscal policy that are designed in order to offset a fluctuations in the domestic economic activity via the normal operation without further additional or timely authorization by federal government. These are referred as so because they tend to stabilize the economic and business cycles and thus are further automatically activated without any additional action by the federal government.