When GDP falls during a recession and tax revenues automatically decline, what increases and cushions the economic contraction?

Question

When GDP falls during a recession and tax revenues automatically decline, what increases and cushions the economic contraction?
Multiple choice question.

Transfer payments

Consumer confidence

Taxes

Economic importance

GPT-4o mini · Answer

The correct answer is **Transfer payments**. During a recession, when GDP falls and tax revenues decline, transfer payments (such as unemployment benefits and social security payments) automatically increase to support individuals and households, thus cushioning the economic contraction.