Homework Answers
When the economy is in a recession, a lot of people lose their jobs. This leads to an increase in the unemployment compensation given by the government as the number of beneficiary (Unemployed) increases.
During the Recession, the aggregate income in the economy also decreases. Since tax revenues are dependent on the aggregate income of the economy, a decrease in the aggregate income leads also to a decrease in the tax revenues in the economy.
Hence, when the economy is in a recession: 1. Unemployment compensation is likely to rise and 2. Tax revenue is likely to fall.
Therefore, option b is correct i.e, 1. Rise; 2. Fall.
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