Automatic Stabilizer Essay Example | Topics and Well Written Essays - 500 words

Automatic Stabilizer - Essay Example Automatic stabilizers primarily deal with minor shifts that could harmfully affect one or more sections of economic classes. They are unable to cope with major changes, as those are usually resolved with legislations that utilize greater funding. The population assisted by the shift becomes aware that their situation is not as deeply affected by a change in the economy while the process remains publicly unnoticed. Its action can be best illustrated during recession, wherein income employs displays multiplier effect on progressive tax for it not to drop exceedingly. Correspondingly, transfer payments and services for the poor increases in multiplier effect as well. Automatic stabilizers work as a means to reduce fluctuations in GDP. During recession, the size of the government deficit tends to increase keeping the national income high through a multiplier. Moreover, recession tend to keep imports low, keeping more money in the domestic economy. Being progressive, government tax revenue tends to fall in proportion to national income. In as much as corporation tax, with greater regards to profits than turnovers, decreases with lesser economic activity. There are instances when transfer payment and government purchase increase as opposed to income decline. This becomes apparent when government expenditure consequently increases during recession. Government's unemployment and welfare benefits serves can be describe as such. This is e