How do transfer payments behave in relation to tax revenues as the economy goes through a business cycle?

Question

Multiple choice question.

The same but at a quicker rate of change

The same but at a slower rate of change

They remain constant.

The opposite

Answer 1

Transfer payments typically behave in relation to tax revenues in the following way:

The opposite

As the economy goes through a business cycle, transfer payments tend to increase during recessions when unemployment rises and social safety net programs are utilized more, while tax revenues decline due to lower income levels. Conversely, during economic expansions, transfer payments generally decrease as employment rises and taxes increase due to higher income levels.