05 Jul Are the real-world data consistent with the perspective of the automatic stabilizers during the recessions since the 1970s?
Take a look at the graphs of real GDP and federal debt in the following links:
Real Gross Domestic Product (GDPC1) | FRED | St. Louis Fed (stlouisfed.org) (Links to an external site.)
During a recession, real GDP decreases. On the graph, the grey column is the duration of a recession.
Federal Surplus or Deficit [-] (FYFSD) | FRED | St. Louis Fed (stlouisfed.org) (Links to an external site.)
When there is a budget deficit, the number (T-G) on this graph is negative. This implies that when the number (T-G) is more negative, there is more budget deficit. On the other hand, when there is a budget surplus, the number (T-G) is positive, which occurs, for example, between 1997 and 2001.
Questions:
1. From the perspective of automative stabilizers, how should the federal budget deficits be affected by the business cycles, particularly during a recession? Explain you answers.
2. Are the real-world data consistent with the perspective of the automatic stabilizers during the recessions since the 1970s? That is, does the number (T-G) become more negative during the recessions? Explain your answer.
