Automatic stabilizers

Question

Quizplus · Accepted Answer

Automatic stabilizers are changes in taxes or government spending that increase aggregate demand without requiring policymakers to act when the economy goes into recession. They are built into the fiscal system and do not require any new legislative action to take effect. They work to stabilize the economy by increasing government spending and decreasing taxes during a recession, and reducing government spending and increasing taxes during periods of economic expansion. Unlike discretionary fiscal policy, which requires new legislation to be passed, automatic stabilizers are a more passive approach to stabilization. They may not completely eliminate the need for discretionary fiscal policy, but they do help to reduce the economic fluctuations that occur during a recession or expansion.

Automatic Stabilizers