Automatic stabilizers work by preventing aggregate demand from decreasing as much in bad times and rising as much in good times, thus helping to stabilize the economy.

Question

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Automatic stabilizers, such as unemployment benefits and progressive taxation, automatically increase government spending or decrease taxes when the economy slows down, and decrease spending or increase taxes when the economy grows, thereby stabilizing aggregate demand across economic cycles.

Automatic Stabilizers Work by Preventing Aggregate Demand from Decreasing as Much