Purchase Solution

examples of the automatic stabilizers

Not what you're looking for?

Ask Custom Question

Examine the contribution that automatic stabilizers play in creating a stable economy.

Give examples of the automatic stabilizers and use them to illustrate their significance. Why is there an interest in using fiscal policy to stabilize the economy when the automatic stabilizers are available?

Purchase this Solution
Solution Summary

This posting includes examples of the automatic stabilizers.

Solution Preview

An economic policy or program that increases or decreases automatically to offset the current economic trend without government assistance.
: An example of such a policy would be unemployment insurance.
In economics, an automatic stabilizer is a government policy of taxes and transfer payments that stabilize GDP without requiring policy-makers to take explicit action. Unemployment benefit is an example of an automatic stabilizer.

We have seen that changes in government purchases, taxes and transfer payments can have an impact on equilibrium aggregate demand. When a government deliberately changes its spending or taxation policies in order to influence aggregate demand, we call that "fiscal policy." But there is another, more automatic way that spending and taxation can influence the economy.
· Some kinds of taxes rise more than proportionately when income increases. A progressive income tax is an example of this. "progressive" means that the tax rate is higher on higher incomes. Thus, when income ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Fiscal policy and automatic stabilizers

    Because automatic stabilizers reduce the size of the multiplier, they help to stabilize the economy. Examples of automatic stabilizers are: -taxes that rise more than proportionately when income increases.

  • Automatic Stabilizers

    47578 Automatic Stabilizers notes How do automatic stabilizers safeguard the economy against the possible occurrence of a depression? How do automatic stabilizers safeguard the economy against the possible occurrence of a depression?

  • Discretionary fiscal policy versus automatic stabilizers

    Automatic stabilizers minimize the problem of proper timing.

  • Effects of imposing Proportional and Progressive Tax

    Progressive and proportional taxes are a form of automatic stabilizers. Automatic stabilizers serve to dampen the economy in times of prosperity and to lessen the effect of recessions.

  • Automatic Fiscal Stabilizers

    165325 Automatic Fiscal Stabilizers Determine whether each of the following is an example of an automatic fiscal stabilizer: a) Government agency arranges to make loans to business when ever an economic downturn begins b) As the economy heats up, the

  • Automatic stabilizers vs discretionary spending

    How do we understand the difference between Automatic Stabilizers and Discretionary Fiscal Policy? (1) The expenditure approach uses the total values of goods and services purchased in the economy.

  • Fiscal Policy

    The elimination of automatic stabilizers would most likely increase the need for more fiscal policy prescriptions. True False 6.

  • The quantity of money theory

    Because automatic stabilizers reduce the size of the multiplier, they help to stabilize the economy. Examples of automatic stabilizers are: -taxes that rise more than proportionately when income increases.

  • Large federal budget deficits

    However, taxation works like an automatic stablizer during period of expansion, as higher income is linked to higher marginal tax rate. Thus, the automatic stabilizers can reduce the deficit.

View More Related Solutions