Automatic stabilizers stabilize the level of real GDP because:

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Quizplus · Accepted Answer

Automatic stabilizers refer to policies that adjust government spending and tax revenue in response to changes in the level of real GDP. Specifically, during periods of economic expansion, tax revenue tends to increase while government expenditures on programs such as unemployment benefits tend to decrease, which helps slow the rate of economic growth. Conversely, during economic downturns, tax revenue tends to decrease while government expenditures on programs such as unemployment benefits tend to increase, which helps support economic activity. These automatic stabilizers operate without the need for Congress to actively pass laws, making them an effective tool in stabilizing the level of real GDP. The spending and tax multiplier may impact the effectiveness of automatic stabilizers, but the fact that they adjust to changes in real GDP is what primarily makes them effective. The minimum wage law is not tied to automatic stabilizers and does not directly impact economic growth.

Automatic Stabilizers Stabilize the Level of Real GDP Because