Thursday, January 14, 2016

What are some of the elements that provide for "built in stability" in the economy?

What you are asking about here is what are called
"built-in stabilizers."  This term refers to aspects of government policy that
automatically tend to "stabilize" the economy when it moves towards recession or
excessive inflation.


Taxes and some kinds of spending are
built-in stabilizers.  When the economy starts to slow down, taxes take away less of the
money that people are making.  At the same time, certain goverment spending programs
kick in for more people.  These are programs like unemployment insurance or food stamps
that give out more money when times are hard.


In this
example, you have a system in which the government automatically takes less in taxes and
gives out more in spending when times get hard.  This is a built-in stabilizer that is
supposed to automatically stabilize the economy.

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