Government taxes, transfers and spending work like a thermostat because

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Like a thermostat, automatic budget surpluses and deficits work to counteract changes in real GDP. For example, during a contraction, tax revenues decrease and transfer payments increase, causing a budget deficit. This deficit acts as a stimulus to the economy by putting more money into people's pockets, which can increase consumer spending and help to boost the economy. Conversely, during an expansion, tax revenues increase and transfer payments decrease, causing a budget surplus. This surplus acts as a restriction on the economy by taking money out of people's pockets, which can slow down consumer spending and help to cool off the economy. Overall, this automatic stabilizer feature of government finances helps to smooth out the ups and downs of the business cycle.

Government Taxes, Transfers and Spending Work Like a Thermostat Because