15. Which of the following statement about the automatic stabilizer 2 points created by government taxes...

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15. Which of the following statement about the automatic stabilizer 2 points created by government taxes and spending is false? * The stabilizer arises because if an economy moves into a recessionary gap, tax revenues fall and transfers rise, while if it moves into an inflationary gap, tax revenues rise and transfers fall. The stabilizer means that if the government balances its budget when output is at its potential level, then it will have a deficit in a recessionary gap and a surplus in an inflationary gap If output moves away from its potential level, the stabilizer ensures that it will eventually return to it. The stabilizer would be stronger if the government imposed higher taxes on people with high incomes and paid higher transfers to the unemployed. 15. Which of the following statement about the automatic stabilizer 2 points created by government taxes and spending is false? * The stabilizer arises because if an economy moves into a recessionary gap, tax revenues fall and transfers rise, while if it moves into an inflationary gap, tax revenues rise and transfers fall. The stabilizer means that if the government balances its budget when output is at its potential level, then it will have a deficit in a recessionary gap and a surplus in an inflationary gap If output moves away from its potential level, the stabilizer ensures that it will eventually return to it. The stabilizer would be stronger if the government imposed higher taxes on people with high incomes and paid higher transfers to the unemployed.

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The correct option is c If output moves away from its potential level the stabilize... View the full answer