Automatic stabilizers

Question

Quizplus · Accepted Answer

Automatic stabilizers are policies or mechanisms in the economy that act to dampen fluctuations in economic activity without the need for explicit action by policymakers. They include programs like unemployment benefits and progressive tax systems that automatically adjust to changes in economic conditions. By boosting the purchasing power of those who have lost jobs or otherwise become economically vulnerable during downturns, or by reducing the purchasing power of those whose incomes have risen during expansions, these programs help to smooth out the business cycle. While automatic stabilizers can help to reduce the severity of economic fluctuations, they do not necessarily reduce the size of the public debt, and they do not require ongoing legislative action to be implemented.

Automatic Stabilizers