Automatic stabilisers

Question 1

Automatic Stabilisers

Answer 1

• Built in or cyclical stabilisers.
• They operate in a countercyclical way without the treasurer
  deliberately changing their level or introducing new policies.
• Tax receipts and welfare payments to the unemployed act as automatic stabilisers

Question 2

automatic stabilisers in influencing aggregate demand and stabilising the business cycle

Answer 2

For example, in times of low economic activity people earn less and fall into a lower tax bracket. This means their household disposable income will rise as they have to pay less taxes, which boosts private consumption expenditure and therefore AD. This helps to stabilise it in times of lower AD / in a trough in the business cycle.