Automatic stabilizers are built in government programs or policies that are design to automatically counter the business cycle. With automatic stabilizers in place the government does not have to create new programs or policies. According to "Amosweb" (2013), “Taxes and transfer payments that depend on the level of aggregate production and income such that they automatically dampen business-cycle instability without the need for discretionary policy action. Automatic stabilizers are a form of nondiscretionary fiscal policy that does not require explicit action by the government sector to address the ups and downs of the business cycle and the problems of unemployment and inflation” (para. 1).
Built in automatic stabilizers are government programs such as the income tax system, welfare programs and unemployment insurance. When the economy is in a slump or nearing a recession, companies downsize and the number of unemployed workers is elevated. Unemployment an automatic stabilizer kicks in for unemployed workers to help offset the decrease in individuals’ income. Whereas, individual spending has decreased due to unemployment, government spending has increased without any new policies introduced to offset the higher unemployment rate.
The significant aspect of automatic stabilizers is that they actually work. There is no need for government to enact legislation, pass bills, or to undertake any other policy action. The structure of the economy is built to include these stabilizers; however, one must meet a set of rules and criteria before they can collect government funds
AmosWEB. (2013). Retrieved from http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpdc=dsp&k=automatic stabilizers
Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.