As the economy contracts, tax revenues rev: 06_13_2018 Multiple Choice rise and transfer payments rise, causing the economy to contract by more than it would in the absence of automatic stabilizers. fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers. fall and transfer payments fall, causing the economy to contract by more than it would in the absence of automatic stabilizers. rise and transfer payments fall, causing the economy to contract by less than it would in the absence of automatic stabilizers.

fall and transfer payments rise, causing the economy to contract by less than it would in the absence of automatic stabilizers

Explanation:

Automatic stabilizers are fiscal policies that reduces the effect of economic fluctuations automatically without the intervention of policy makers or the government.

Examples of automatic stabilizers are progressive tax and transfer payments.

Progressive tax takes more tax from people with higher income and lower tax from those with lower income. So as income falls, the amount of tax paid falls ,this increases the amount of disposable income.

Also transfer payments such as unemployment insurance and welfare are given to those unemployed.

Taxes and transfer payments thus cushions the effects of economic fluctuations

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