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Chapter 30: Q.32 (page 742)

Why do automatic stabilizers function 鈥渁utomatically?鈥�

Short Answer

Expert verified

Automatic stabilisers work without the need for government intervention since they bring about adjustments in the economy.

Step by step solution

01

Concept of automatic stabilizers.

Automatic stabilizers are tax and spending rules that lower the pace of decline in consumer spending when the economy slows and constrain aggregate demand whenever the economy accelerates.

02

Explanation of solution.

Automatic stabilisers were created as a result of previous legislation. They function as no additional laws are passed after they have been put in place. Unemployment insurance, for example, is a self-correcting mechanism. When unemployment rises, eligible unemployed workers receive benefits even though the state and the presidency do nothing.

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