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Exam Code: MB-330
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NEW QUESTION: 1
When an economy dips into a recession, automatic stabilizers will tend to alter government spending and taxation so as to:
A. enlarge the budget deficit (or reduce the surplus).
B. reduce interest rates, thus stimulating aggregate demand.
C. ensure that the budget will remain in balance.
Automatic stabilizers are built in features of the economy that tend to promote a budget deficit during a recession. Thus transfer payments such as unemployment compensation increase during a recession (since output has contracted) and government spending increases.
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