Automatic Stabilizers
Introduced| English | Meaning |
|---|---|
| legislative lag/ˈledʒɪslətɪv læɡ/ | The delay between deciding that fiscal policy is needed and passing the legislation that authorises it. |
| automatic stabilizers/ˌɔːtəˈmætɪk ˈsteɪbəlaɪzəz/ | Tax and transfer arrangements that cushion fluctuations in aggregate demand without new policy decisions for each change in economic activity. |
| progressive/prəˈɡresɪv/ | Describing a tax whose average rate increases as the taxable income increases. |
| recession/rɪˈseʃn/ | A significant, sustained decline in an economy's overall activity. |
| transfer payments/ˈtrænsfɜː ˈpeɪmənts/ | Payments made without receiving currently produced goods or services directly in return, such as certain benefits or grants. |
| unemployment benefits/ʌnemˈplɔɪmənt ˈbenɪfɪts/ | Transfer payments to eligible unemployed workers that partly replace lost earnings and can help stabilise spending. |
| discretionary/dɪˈskreʃənəri/ | Describing a policy change made through an active decision rather than an automatic rule. |
Policy that acts by itself
- Deliberate fiscal policy has a weakness: new laws take time to pass.
- Debate and votes create a legislative lag 立法时滞.
- But some parts of the budget push back against the cycle on their own.
- These are automatic stabilizers 自动稳定器 — no new law needed.
An automatic stabilizer dampens the business cycle:
Difficulty 1/5 · 100 coins + a small bonus on first completion today
It is built into existing law, so it acts instantly with no legislative lag.
Progressive taxes
- Under a progressive 累进 tax, higher incomes are taxed at higher rates.
- In a boom, incomes rise, so tax collections rise more than proportionally — automatically draining spending power and cooling AD.
- In a recession 经济衰退, incomes fall, collections fall even faster, so households keep more of each dollar, propping up AD.
- The tax system leans against the cycle by itself.
Automatic stabilisers lean against the business cycle: taxes rise in booms and benefits rise in recessions
In a boom, a progressive tax system automatically:
Difficulty 1/5 · 100 coins + a small bonus on first completion today
Rising incomes are taxed more than proportionally, draining spending power in a boom.
Transfer payments
- Transfer payments 转移支付 give income without asking for output in return — like unemployment benefits 失业救济金.
- In a recession, more people lose jobs and claim benefits, so this spending rises automatically, supporting AD just when it is weakest.
- In a boom, fewer people claim, so it falls, cooling AD.
- Again, no vote is needed.
Automatic or discretionary?
Automatic stabilizers (progressive taxes, transfer payments) act by themselves with no new law; discretionary policy is a deliberate new spending or tax choice.
In a recession, unemployment benefits rise automatically, supporting aggregate demand.
Difficulty 1/5 · 100 coins + a small bonus on first completion today
More people claim benefits when jobs are lost, so transfer spending rises on its own.
Select all that are automatic stabilizers.
Difficulty 2/5 · 140 coins + a small bonus on first completion today
Progressive taxes and transfers act automatically; a new bill is discretionary.
Automatic vs discretionary
- Automatic stabilizers act instantly and by themselves, built into existing law — no legislative lag.
- Discretionary 相机抉择 fiscal policy is a deliberate new choice (a fresh spending bill or tax change) — precise, but slow to enact.
- Automatic stabilizers do not usually close a whole gap, but they blunt the shock and buy time.
- Worked idea. A recession hits: benefits rise and income taxes fall automatically, so AD does not drop as far.
The time it takes to debate and pass a new spending or tax law is called the ______ lag.
Difficulty 1/5 · 100 coins + a small bonus on first completion today
Discretionary policy suffers a legislative lag; automatic stabilizers do not.
Compared with discretionary policy, automatic stabilizers are:
Difficulty 1/5 · 100 coins + a small bonus on first completion today
They act by themselves at once; discretionary policy can be aimed precisely but is slow.
Automatic stabilizers dampen the business cycle without new legislation: progressive taxes drain spending in booms and less in slumps, and transfer payments (like unemployment benefits) rise automatically in a recession. Unlike discretionary policy, they act instantly with no legislative lag.
Write from a tax rise of 60
- In a boom, income-tax revenue rises from 200 to 260 with no new law.
- Name the stabilizer.
In a boom, income-tax revenue rises from 200 to 260 even though parliament passes no new tax law. By how much did revenue rise, and what kind of stabilizer is this?
260 minus 200 is 60.
What is the tax-revenue rise?
Difficulty 1/5 · 100 coins + a small bonus on first completion today
The tax system itself raised revenue by 60.