Built-in stabilizers refer to automatic changes in government spending and tax revenues that occur without any new laws or regulations. While they are not sufficient to prevent business cycles, they do tend to lessen fluctuations in real GDP by providing a stabilizing force during economic downturns (for example, when incomes fall, tax revenue also falls, but government transfers such as unemployment benefits increase).

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Built-In Stabilizers

Question 133

Multiple Choice

Built-in stabilizers

A) are insufficient to prevent the business cycle,but tend to lessen fluctuations in real GDP.
B) were introduced under President Nixon.
C) are found primarily in discretionary fiscal policy.
D) tend to lessen fluctuations in GDP through their effect on the money supply.
E) were endorsed by Adam Smith.

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