So pause this video forĪ second and think about how do taxes help smooth So what are examples ofĪutomatic stabilizers? So one common one is taxes. On the circumstances in order for them to help These are things that people don't have to take special action based What we're going to focus on in this video are automatic stabilizers. To close that output gap, that is discretionary,ĭiscretionary fiscal policy. 'Let's increase government spending.' That type of fiscal policy, where the government isĭoing something special for that circumstance in order The government will say, 'Hey, let's pass a stimulus package, 'explicitly to try to close More likely, when there'sĪ negative output gap and people are out of work, They might try to do somethingįor that moment in time to bring to close that gap a little bit. They might haveĬontractionary fiscal policy. For example, when you haveĪ positive output gap, a government might be afraid These are tools that governments might use in order to close these output gaps. So this is a positive output gap at that point right over there. There are times when theyĪre above the trend line. But we know that realĮconomies don't just have this nice, clean economic growth.

Maybe it's population is increasing, they're getting more productive, maybe with better education So this economy isĮxperiencing economic growth. What we see in this dark blue color, you can view that asįull employment output at different points in time, and you can see that it is growing. Have depicted in this diagram is the business cycle

Automatic stabilizers fiscal policy