Automatic stabilizers are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

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Automatic stabilizers refer to the predetermined government policies that adjust spending and taxes during economic fluctuations. For example, during a recession, people may experience job losses and lower incomes leading to decreased consumption; automatic stabilizers would respond by increasing government spending on social welfare programs, such as unemployment benefits or food stamps, and decreasing taxes to stimulate consumption, leading to an automatic expansionary fiscal policy. Similarly, during an economic boom, automatic stabilizers would reduce government spending and increase taxes to cool off the economy, leading to an automatic contractionary fiscal policy.

Automatic Stabilizers Are Government Spending and Taxation Rules That Cause