Prelim: Economic Stabilizers? (1 Viewer)

[haiderr]

Hi, i have no idea what economic stabilizers are. We only just touched on it in class but it is important to understand it so pls could someone give a detailed explanation of economic stabilizers and maybe examples. Thank you so much!

btw, this site is AWESOME! Congratulations to those who set it up and to those that now run it, you guyz r doing an awesome job! and Without Wings, you are a LEGEND! ive read alot of your posts n u really giv good solid replies to every1!

 

[Vars5]

[FONT=&quot]Automatic stabilisers [/FONT]
[FONT=&quot]Even without government intervention, levels of revenue and expenditure change in response to changing economic stabilisers. Automatic Stabilisers are policies that operate automatically to counterbalance the trend in the level of economic growth and to stabilise the economy. The main two automatic stabilisers are a progressive personal income tax and unemployment benefits. Their operation can be illustrated by the following two situations:[/FONT]
·[FONT=&quot]An increase in the level of economy activity[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Leads to income rising, which results in increased Taxation.[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Unemployment falls; reducing expenditure on unemployed benefits. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Budget outcome: a smaller deficit or larger surplus. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Automatic stabiliser lead to a contraction in aggregate demand, having a stabilising effect on the economy.[/FONT]
·[FONT=&quot]A decrease in the level of economic activity:[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Income levels falls, leading to a fall in taxation revenue.[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Unemployment rises, increasing government liabilities. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Budget outcome: smaller surplus or bigger deficit. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Automatically stimulating aggregate demand even, having a stabilising effect on the economy. [/FONT]
[FONT=&quot]The Budget outcomes are the result of two components. [/FONT]
Ø[FONT=&quot]Changes to government revenue and expenditure brought about by changes in the level of economic activity – known as the cyclical component of the budget. [/FONT]
Ø[FONT=&quot]A deliberate revenue and expenditure change initiated by the government - known as the structural component of the budget – It also reveals the government’s fiscal stance.

I copied that from my summaries, but just follow the dot points and it should make sense.
Hope it helps
[/FONT]

 

[FreoDocker1]

Just to follow up on Vars5's post, dont forget that stabilisers are in place to essentially smooth out the fluctuations in the business cycle and the effects these fluctuations have on the economy. So go back to the old Circular Flow of Income model with households, firms, government etc.

 

[haiderr]

[FONT=&quot]Automatic stabilisers [/FONT]
[FONT=&quot]Even without government intervention, levels of revenue and expenditure change in response to changing economic stabilisers. Automatic Stabilisers are policies that operate automatically to counterbalance the trend in the level of economic growth and to stabilise the economy. The main two automatic stabilisers are a progressive personal income tax and unemployment benefits. Their operation can be illustrated by the following two situations:[/FONT]
·[FONT=&quot]An increase in the level of economy activity[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Leads to income rising, which results in increased Taxation.[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Unemployment falls; reducing expenditure on unemployed benefits. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Budget outcome: a smaller deficit or larger surplus. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Automatic stabiliser lead to a contraction in aggregate demand, having a stabilising effect on the economy.[/FONT]
·[FONT=&quot]A decrease in the level of economic activity:[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Income levels falls, leading to a fall in taxation revenue.[/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Unemployment rises, increasing government liabilities. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Budget outcome: smaller surplus or bigger deficit. [/FONT]
[FONT=&quot]o[/FONT][FONT=&quot]Automatically stimulating aggregate demand even, having a stabilising effect on the economy. [/FONT]
[FONT=&quot]The Budget outcomes are the result of two components. [/FONT]
Ø[FONT=&quot]Changes to government revenue and expenditure brought about by changes in the level of economic activity – known as the cyclical component of the budget. [/FONT]
Ø[FONT=&quot]A deliberate revenue and expenditure change initiated by the government - known as the structural component of the budget – It also reveals the government’s fiscal stance.

I copied that from my summaries, but just follow the dot points and it should make sense.
Hope it helps
[/FONT]

Hey thanks heaps Vars5 and FreoDocker1!! although its gonna take me some time to understand it all (ill go over it a couple of times)... lol but thnx heaps!