A Primer on Macroeconomics

Automatic Stabilizers: Nondiscretionary ­Stabilization

The government has fiscal policy tools at its disposal that it can choose to deploy during economic downturns or upswings in order to stabilize the economy. The economy also has nondiscretionary automatic stabilizers that lessen the swings in GDP as the economy moves through the business cycle. Revenue and expenditure programs or policies established in the federal budget that adjust in magnitude as the level of economic activity changes are examples of automatic stabilizers.

Automatic Stabilizers During a Recession

During a recession, when incomes are falling and greater numbers of workers are on the unemployment rolls, more transfer payments are pumped into the economy in the form of unemployment ...