Automatic Stabilizer
In macroeconomics, automatic stabilizers describes how modern government budget policies, particularly income taxes and welfare spending, act to dampen fluctuations in real GDP.
The size of the government budget deficit tends to increase when a country enters a recession, which tends to keep national income higher by maintaining aggregate demand. There may also be a multiplier effect. This effect happens automatically depending on GDP and household income, without any explicit policy action by the government, and acts to reduce the severity of recessions. Similarly, the budget deficit tends to decrease during booms, which pulls back on aggregate demand. Therefore, automatic stabilizers tend to reduce the size of the fluctuations in a country's GDP.
Read more about Automatic Stabilizer: Induced Taxes, Automatic Stabilizers Incorporated Into The Expenditure Multiplier
Famous quotes containing the word automatic:
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—Edward Dahlberg (1900–1977)