APMacro: Automatic Stabilizers

Automatic stabilizers are policy programs whose actions are counter-cyclical and do not require specific action on the part of policymakers. For example, during recessions, government spending automatically increases for unemployment benefits, food stamps, and other programs when more people meet eligibility requirements. During inflation, the progressive tax system charges higher marginal tax rates for those whose incomes are rising faster than the inflation rate. While these automatic stabilizers can help to reduce the effects of economic cycles, discretionary fiscal and monetary policy are much more powerful tools to restore economic stability.