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Automatic Stabilizers

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Automatic Stabilizers
Systems that involuntarily shore up GDP without any action by a government. For example, when a recession occurs, taxes usually decrease because persons and corporations make less. This gives them extra money to spend or invest, which helps GDP remain higher than it would otherwise. Most economists agree that automatic stabilizers work in the short term. They are also called automatic fiscal stabilizers and built-in stabilizers.


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Automatic stabilizers will revert as economic growth heads back to its potential, but much of the fiscal expansion--especially in the United States-was discretionary.
Much of that strength reflects government support from so-called automatic stabilizers, such as unemployment insurance, which ramp up payments to households as times get harder.
Moreover, the impact of automatic stabilizers -- which enable the government to mobilize more or less fiscal resources, depending on economic conditions -- is more powerful in Western Europe than in most of the Anglo-Saxon countries.
 
 
 
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