ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Is an Automatic Stabilizer? Automatic stabilizers are a type of fiscal policy designed to offset fluctuations in a nation’s economic activity through their normal operation without additional, timely authorization by the government or policymakers.

Detailed explanation-2: -Automatic stabilizers help cushion the impact of recessions on people, helping them stay afloat if they lose their jobs or if their businesses suffer. They also play a vital macroeconomic role by boosting aggregate demand when it lags, helping make downturns shorter and less severe than they otherwise would be.

Detailed explanation-3: -The most important automatic stabilizer is the tax system.

Detailed explanation-4: -When the economy is experiencing a recession automatic stabilizers will cause: transfer payments to increase and tax revenues to decrease.

Detailed explanation-5: -Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.