Automatic stabilizer

<p>In <a href="/facts/Macroeconomics/4dcQAdCr">macroeconomics</a>, automatic stabilizers are features of the structure of modern <a href="/facts/Government_budget/Y8Y2ndtA">government budgets</a>, particularly <a href="/facts/Income_tax/VVmmfxKU">income taxes</a> and <a href="/facts/Welfare_(financial_aid)/awUwQxkd">welfare spending</a>, that act to damp out fluctuations in <a href="/facts/Real_GDP/dSN7ff2p">real GDP</a>.
</p><p>The size of the <a href="/facts/Government_budget_deficit/qmD89ywL">government budget deficit</a> tends to increase when a country enters a <a href="/facts/Recession/ncYpUqmr">recession</a>, which tends to keep national income higher by maintaining <a href="/facts/Aggregate_demand/LrIyvUMD">aggregate demand</a>. There may also be a <a href="/facts/Multiplier_(economics)/sXCUGhyx">multiplier effect</a>. This effect happens automatically depending on GDP and household income, without any explicit policy action by the government, and acts to reduce the severity of recessions. Similarly, the budget deficit tends to decrease during booms, which pulls back on aggregate demand. Therefore, automatic stabilizers tend to reduce the size of the fluctuations in a country's GDP. 
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Automatic stabilizer open-in-new

Automatic stabilizer