Suppose the government never borrows, so that it always finances its expenditures with taxes. Suppose further that government spending does not depend on income. In this case:A. both government spending and taxes are automatic stabilizers. B. government spending is an automatic stabilizer, but taxes are not. C. taxes are an automatic stabilizer but government spending is not. D. neither government spending nor taxes are automatic stabilizers.

D

Neither government spending nor taxes are automatic stabilizers.

Explanation:

Automatic stabilizers are mechanisms that controls the movement of tax income without direct influence of law makers. When income levels are high, individual tax liabilities increases and government transfer payments reduces. When income levels are low, individual tax liabilities decreases and government transfer payments increases. Since tax and transfer payments are not dependent on income, neither government spending nor taxes are automatic stabilizers.

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