Automatic Stabilizers (HL only)

Automatic stabilizers are built-in fiscal mechanisms that reduce short-term swings in economic activity without new government intervention. The two main stabilizers are progressive taxes, which withdraw more income during booms, and unemployment benefits, which inject spending during recessions; both help stabilise real national output and moderate the business cycle. Their effectiveness depends on the size of the public sector, how progressive the tax system is, and the scope of welfare provision. Understanding automatic stabilizers is important for evaluating how fiscal policy can support aggregate demand and employment during downturns without discretionary measures.