During an expansionary economy, public assistance payments and unemployment comp

Question

During an expansionary economy, public assistance payments and unemployment compensation payments automatically decrease while income taxes automatically increase. Which of the following best describes the effect of these changes on aggregate demand?

A. Aggregate demand will be less than it would be without these automatic stabilizers. B. Aggregate demand will be the same as it was before the expansion. C. Aggregate demand will be less than it was before the expansion. D. Aggregate demand will be greater than it was before the expansion. E. Both a. and d. accurately describe their effect.

Explanation / Answer

Answer :-   A. Aggregate demand will be less than it would be without these automatic stabilizers.  

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