3.9 Automatic Stabilizers

3.9: Automatic Stabilizers

Automatic stabilizers are a type of fiscal policy that is already in place to offset the fluctuations of economic activity in our economy. These include things like unemployment benefits, welfare, and progressive income taxes.

Automatic stabilizers are typical used to counter the effects of negative supply shocks or recessions. For example, if an economy falls into a recession we see an increase in unemployment benefits being given to help get the economy moving again and spending money which will ultimately cause an increase in aggregate demand.