automatic stabilizer

Examples of automatic stabilizer in the following topics:

• Automatic Stabilizers Versus Discretionary Policy

  • Automatic stabilizers and discretionary policy differ in terms of timing of implementation and what each approach sets out to achieve.
  • In fiscal policy, there are two different approaches to stabilizing the economy: automatic stabilizers and discretionary policy.
  • On the other hand, automatic stabilizers are limited in that they focus on managing the aggregate demand of a country.
  • For example, if an economy is going through a recession because its workers lack a certain set of skills, automatic stabilizers cannot address that problem.
  • Finally, automatic stabilizers, such as the tax code and social service agencies, exist prior to an economic fluctuation.

• Automatic Stabilizers

  • Automatic stabilizers are modern government budget policies that act to dampen fluctuations in real GDP.
  • Here is an example of how automatic stabilizers would work in a recession.
  • Therefore, automatic stabilizers tend to reduce the size of the fluctuations in a country's GDP.
  • What makes automatic stabilizers so effective in dampening economic fluctuations is the fiscal multiplier effect.
  • Taxes are a part of the automatic stabilizers a country uses to minimize fluctuations in their real GDP.

• Difficulty in Getting the Timing Right

  • A nation can respond to economic fluctuations through automatic stabilizers or through discretionary policy.
  • With regards to automatic stabilizers, timing is not an issue.
  • Automatic stabilizers are designed to respond to evolving economic conditions without anyone taking action.

• Effect of a Government Budget Deficit on Investment and Equilibrium

  • This type of budget deficit serves as a stabilizer, insulating individuals from the effects of the business cycle without any specific legislation or other intervention.
  • Unlike the cyclical budget deficit, a structural deficit is the result of discretionary, not automatic, fiscal policy.
  • While automatic stabilizers don't actually shift the aggregate demand curve (because transfer payments and taxes are already built into aggregate demand), discretionary fiscal policy can shift the aggregate demand curve.

• Farenheit Scale

  • This is a frigorific mixture, which stabilizes its temperature automatically; the stable temperature of this mixture was defined as 0 °F (-17.78 °C).

• Dividend Reinvestments

  • Dividend reinvestment plans (DRIPs) automatically reinvest cash dividends in the stock.
  • DRIPs help to stabilize the stock price.

• Personal Biases

  • Basically, it is the perception that if someone demonstrates well in a certain area, then they will automatically perform well at something else regardless of how interconnected the tasks are.
  • Personal biases (or architectural ones) can negatively influence the stability of decision making.

• Exchange Rate Policy Choices

  • This puts the entire economy's financial sector stability in danger.
  • Under fixed exchange rates, this automatic re-balancing does not occur.
  • This is because sudden depreciation in their currency value poses a significant threat to the stability of their economies.

• The Functionalist Perspective

  • Durkheim was concerned with the question of how societies maintain internal stability and survive over time.
  • The functionalist perspective continues to try and explain how societies maintained the stability and internal cohesion necessary to ensure their continued existence over time.
  • The various parts of society are assumed to work together naturally and automatically to maintain overall social equilibrium.
  • For example, crime seems difficult to explain from the functionalist perspective; it seems to play little role in maintaining social stability.
  • How does it contribute to social stability?

• Managed Float

  • Floating exchange rates automatically adjust to economic circumstances and allow a country to dampen the impact of shocks and foreign business cycles.
  • A floating exchange rate also allows the country's monetary policy to be freed up to pursue other goals, such as stabilizing the country's employment or prices.