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Automatic Stabilizers. Building Fiscal Policies Into Institutions. Economists have attempted to create built-in fiscal policies. Automatic stabilizers – any government program or policy that counteracts the business cycle without any new government action.

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Automatic Stabilizers


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building fiscal policies into institutions
Building Fiscal Policies Into Institutions
  • Economists have attempted to create built-in fiscal policies.
  • Automatic stabilizers – any government program or policy that counteracts the business cycle without any new government action.
building fiscal policies into institutions3
Building Fiscal Policies Into Institutions
  • Automatic stabilizers include welfare payments, unemployment insurance, and the income tax system.
how automatic stabilizers work
How Automatic Stabilizers Work
  • When the economy is in a recession, the unemployment rate rises.
  • Unemployment insurance automatically is paid out to the unemployed, offsetting some of the fall in income.
how automatic stabilizers work5
How Automatic Stabilizers Work
  • Government spending increase without an explicit act by the government.
  • When incomes increase, government spending declines automatically.
how automatic stabilizers work6
How Automatic Stabilizers Work
  • When the economy expands, tax revenues rise, slowing the economy.
  • When the economy contracts, tax revenues decline, providing stimulus to the economy.
the automatic stabilizers
The Automatic Stabilizers
  • The automatic stabilizers protect us from the extremes of the business cycle
    • Personal Income and Payroll Taxes
      • During recessions, tax receipts decline
      • During inflations, tax receipts rise
    • Personal Savings
      • During recessions, saving declines
      • During prosperity, saving rises

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the automatic stabilizers8
The Automatic Stabilizers
  • The automatic stabilizers protect us from the extremes of the business cycle
    • Credit Availability
      • Credit availability helps get us through recessions
    • Unemployment Compensation
      • During recessions more people collect unemployment benefits

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Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

the automatic stabilizers9
The Automatic Stabilizers
  • The automatic stabilizers protect us from the extremes of the business cycle
    • The Corporate Profits Tax
      • During recessions, corporations pay much less corporate income taxes
    • Other Transfer Payments
      • Welfare (or public assistance) payments, Medicaid payments, and food stamps rise during recessions

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