Question

Describe how certain aspects of fiscal policy function as automatic stabilizers for the economy

Short answer

Automatic stabilizers aim to be at the forefront of protection as they react almost immediately to changes in income and unemployment, reversing mild negative economic trends. However, governments often use these others to deal with a more serious or long-term recession, or for further financial relief, targeting specific regions, sectors, or politically-supported groups of society. Look at the broader fiscal policy initiatives of the type.

Step-by-step solution

Step 1- Introduction

Automatic stabilizers take into account changes in economic activity without direct dialogue with policy makers. If you have a high income, your taxes and other laws will not improve, your tax obligations will increase, and your right to state benefits will decrease. Conversely, lower incomes reduce tax obligations and increase the number of households eligible for government benefits such as food stamps and unemployment insurance to support their income.

Step 2- Explanation

Automatic stabilizers also work in state and local tax and transfer processes. Nevertheless, state constitutions usually require a balanced budget, which can lead to opposition adjustments to spending and tax law. These provisions do not enforce a complete rebalancing each year. Budget forecasts tend to be more focused than executions, so deficits can continue even when economic conditions are unexpectedly weak.

- Conclusion

When the economy is in recession, automatic stabilizers inherently lead to high budget deficits. This is an aspect of fiscal policy, a Keynesian economic mechanism that uses government spending and taxes to boost aggregate demand in the economy during a recession. Fiscal policy is to avoid worsening recession by allowing private companies and households to reduce taxpayers' money and give more in the form of subsidies and tax refunds. Should be increased, or at least not decreased.