Key Summary Notes for the AQA A-level Economics course on Automatic Stabilizers part of the Fiscal Policy Topic, guaranteed to boost you to the top grades.
Automatic Stabilizers: Fiscal policy tools to influence GDP and counter
fluctuations in the Economic Cycle.
Discretionary Fiscal Policy: Expansionary fiscal Policy on top Of Automatic
Stabilizers.
Automatic Stabilizers (Tools):
1) Progressive Income Tax System
2) Welfare Benefits - Unemployment Benefits
Boom (Cushion Demand)
1) Income Rise - workers pushed into higher income tax bands -
Increase average rate of tax(amount of income tax paid as proportion
of income) - slow down consumption - Slow down AD - Demand pull
inflation doesn't spiral out of control.
2) Unemployment Low - Gov spending on benefits is low - helps reduce
G - cushion demand.
Rescission (Support Output):
1) Income fall - workers in lower tax bands - reduce average rate of
Income tax paid - prevents large decreases in consumption -
supports output.
2) Unemployment is Higher - Gov spending on Benefits rises - increase
AD - prevent Deep recession.
If Automatic Stabilizers work - there are fewer deviations from the
economic cycle (green line).
If Automatic Stabilizers are strong - less need for discretionary fiscal policy
to get out of RECESSION
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