A government may have to resort to the use of taxes and spending it in a discretionary manner to overcome the inflation process. Sometimes economics would have an automatic stabilizer program that would help a country to overcome negative inflation.
An example of an automatic stabilizer is when many people who become unemployed due to recession would apply for recession welfare programs, and a government would have to increase spending by taking money from an extra tax that government gained during low petrol price or any other method.
The intervention of government during a recession is termed as discretionary fiscal stabilization. There is more technical knowledge involved in the subject and student should get the hang of it before trying automatic stabilizer homework answers.
Lag in an economy will not happen in a country when proper automatic stabilizer mechanism is there. The disposable income in a recession is an important factor in ensuring the country becomes normal in recession and that can control people emotions. If automatic stabilizer fails the chances of riots and other untoward activities happening are high.
Overall function of automatic stabilizers
A progressive tax system is used by countries to offset recession problems that can happen at any point in time. A high growth rate would ensure that an individual earns more and can pay tax more and a lower growth rate would mean that an individual would earn less and would need to pay a very low tax rate based on earnings.
Deficit funding happens when the recession takes place, and the reason is that more spending is done on welfare front to keep the economy on a roll. Unemployment funding and food funding are common welfare funds that governments help bailout people, and the other bailout package is for farmers who would reel under severe drought and flood like situations.
Natural causes like floods, drought can cause a recession and derail an economy that was going on a right track. Disaster management fund would help people recover from the severe losses they might have suffered and would help economy limp back to normal
Automatic stabilizers do not get the recognition from the common public because they always fall outside the purview of politics. If a political party decides to cut the automatic stabilizer, then only public outrage would happen. A political process is there to implement the fiscal process, and that would help in stabilizing economy always.
A transfer payment is a method that government uses to fund a person through bank account by transferring a part of the tax that a person has paid. This fund would happen for funding health related benefit scheme during a recession.
Unemployment and farmer insurance is another method to cut down the frustration that might be creeping in people due to job loss and crop loss. Many people would lose a job due to a loss in economy, and there are conditions in which economy may take time to recover. For example, a positive trade country, exports can be at loss of the country to which exporting is done in bulk may face recession problems. Students should understand or grasp the basics well before attempting automatic stabilizer homework answers.
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