AUTOMATIC STABILIZERS

AUTOMATIC STABILIZERS - and unemployment compensation...

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SECTION 23: AUTOMATIC STABILIZERS
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AUTOMATIC STABILIZERS: Changes in tax revenue or government spending that occur automatically as the economy grows or contracts which reduce the size of the growth or contraction Automatic stabilizers reduce the magnitude of swings in the business cycle
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POSITIVE EFFECT OF AUTOMATIC STABILIZERS DURING A RECESSION: During a recession, government spending on welfare, food stamps,
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Unformatted text preview: and unemployment compensation increases automatically. Also, tax revenue decreases . These factors reduce the ultimate fall in GDP. NEGATIVE EFFECT OF AN AUTOMATIC STABILIZER DURING AN EXPANSION (FISCAL DRAG) During an expansion, tax revenue increases . Welfare and unemployment compensation decrease. This dampens the increase in disposable income Causes the expansion to be moderated....
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This note was uploaded on 04/15/2008 for the course ECON 0110 taught by Professor Kenkel during the Fall '08 term at Pittsburgh.

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AUTOMATIC STABILIZERS - and unemployment compensation...

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