AUTOMATIC STABILIZERS Meaning and
Definition
-
Automatic stabilizers refer to economic policies or mechanisms that are set in place to offset fluctuations in economic activity without the need for deliberate and discretionary interventions by policymakers. These stabilizers are designed to automatically adjust fiscal policy based on the state of the economy, helping to stabilize it during periods of economic downturns or expansions.
One key example of an automatic stabilizer is the progressive income tax system. As individuals' incomes increase, they enter higher tax brackets, resulting in a higher tax rate. Conversely, during economic downturns when incomes decrease, individuals move into lower tax brackets, effectively reducing their tax burden. This automatic adjustment in the tax system helps to stabilize the economy by reducing the impact of income fluctuations on consumer spending.
Another example of an automatic stabilizer is the unemployment insurance system. During periods of economic recession, when unemployment rates rise, more individuals become eligible to receive unemployment benefits. These benefits provide a safety net by helping unemployed individuals maintain a certain level of income, stimulating aggregate demand and cushioning the impact of the recession.
Overall, automatic stabilizers aim to promote economic stability by counteracting fluctuations in economic activity. By adjusting fiscal policy automatically, these stabilizers provide stability and support to the economy without the need for discretionary policy interventions.
Etymology of AUTOMATIC STABILIZERS
The word "automatic stabilizers" is a term commonly used in economics and fiscal policy. Its etymology can be broken down as follows:
1. Automatic: The term "automatic" comes from the Greek word "automatos", meaning "self-acting" or "self-moving". It later entered the English language through Latin.
2. Stabilizers: The word "stabilizers" is derived from the noun "stabilize", which comes from the Latin word "stabilis", meaning "steady" or "stable". The suffix "-ize" in English is commonly used to form verbs and means "to make" or "to cause".
Therefore, the term "automatic stabilizers" can be understood to mean "self-acting mechanisms that aim to stabilize or keep something steady".
