Question

describe what automatic stabilizers are and cited two examples

Answer 1

Answer. Automatic stabilizers are the tools that automatically stabilize the economy or in other words, they offset the fluctuations in the economy without the intervation of government or fiscal policy changes. For example;

In periods of high growth, income in the economy will rise and thus, people will have to pay more tax. This will increase the tax revenue of the government and borrowings of the government will decrease without the change in governement law/policies of tax or benefits.

Smiliarly, in the periods of low growth or recession, income will fall and thus, tax revenues of the government will also fall without any changes being made in tax laibilities.

Other examples are unemployment insurance or benefits, as unemployment will decrease in periods of high growth and vice-versa, without any changes in unemployment benefits.

Please rate up.