Which fiscal mechanism tends to support household income automatically during an economic downturn?
Correct answer: C. Progressive income taxation
- A. Higher import tariffs
- B. Lower unemployment benefits
- C. Progressive income taxation
- D. Reduced public investment
Explanation
Progressive income taxation collects less revenue when incomes fall, helping to protect disposable income automatically. Unemployment benefits can also act as stabilizers, but reducing them would weaken this effect.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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