3.6.6 (HL)—Automatic stabilizers

Automatic stabilizers change the budget and demand without a new discretionary decision as income changes, such as progressive taxes and unemployment benefits.

They cushion shocks quickly but may weaken incentives or create deficits during prolonged downturns.

Trace how income changes tax/benefit flows and aggregate demand.

When unemployment rises, benefit payments increase and tax receipts fall, supporting household spending.

Automatic does not mean costless or perfectly targeted.