Automatic Stabilizer

AAA

DEFINITION of 'Automatic Stabilizer'

Economic policies and programs that are designed to offset fluctuations in a nation's economic activity without intervention by the government or policymakers. The best-known automatic stabilizers are corporate and personal taxes, and transfer systems such as unemployment insurance and welfare. Automatic stabilizers are so called because they act to stabilize economic cycles and are automatically triggered without explicit government intervention.

INVESTOPEDIA EXPLAINS 'Automatic Stabilizer'

Automatic stabilizers act in a manner that is against the prevailing economic trend. For example, in a progressive taxation structure, the share of taxes in national income falls when the economy is booming and rises when the economy is in a slump. This has the effect of cushioning the economy from changes in the business cycle. Similarly, total net transfer payments such as unemployment insurance decline when the economy is in an expansionary phase, and rise when the economy is mired in recession.

RELATED TERMS
  1. Economics

    A social science that studies how individuals, governments, firms ...
  2. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  3. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  5. Economy

    The large set of inter-related economic production and consumption ...
  6. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  3. Fundamental Analysis

    The Misery Index: Measuring Your Misfortune

    The Misery Index measures a combination of unemployment and inflation, but what does it mean for your finances?
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Professionals

    Jobless Growth: Are You Prepared?

    Economic growth doesn't always mean employment growth. Learn about how the jobless growth economy affects workers and investors.
  6. Options & Futures

    Why Wages Stick When The Economy Shifts

    Even economists can't agree on the impact (or even existence) of wage stickiness. So, how does it affect you?
  7. Budgeting

    Planning For Unemployment

    Preparation can help you land on your feet after getting the "old heave-ho".
  8. Investing

    What Has Been Groupon’s Growth Strategy?

    Groupon established a strategy with efforts to become a broader force in the e-commerce world and to expand more strongly into international markets.
  9. Economics

    The Impact Of Ending The US Embargo On Cuba

    Many argue that ending the US embargo on Cuba will not only make US consumers happy, but also help the US economy and bring more freedoms to Cuba.
  10. Economics

    Afraid Of A New Financial Crisis?

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center