Automaticstabilizersnotes

Automaticstabilizersnotes - 13:10 Automaticstabilizers:

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13:10 Automatic stabilizers: Changes in fiscal policy that stimulate aggregate demand when economy  goes into recession, without policymakers having to take any deliberate action o (nothing that the government has to decided or reevaluate once recession  happens (automatic) o ex. The tax system, in recession, taxes fall automatically which stimulates  aggregate demand o government payments: in a recession, more people apply for public  assistance (welfare, unemployment insurance) o government payments from these programs automatically rises, which  stimulates aggregate demand.  o Government can extend unemployment benefits, if they extend  unemployment benefits (if they run out of benefits after 6 months then the  aggregate demand is hurt so recession would be extended) Conclusion:   o policy makers need to consider all the effects of their actions. For  example, When congress cuts taxes, it should consider the short-run effects on 
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Automaticstabilizersnotes - 13:10 Automaticstabilizers:

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