explain the use of automatic stabilisers in oz economy. (1 Viewer)

[coroneos]

Hi.

Can soemone please explain how automatic stabilisers are used in the Australian Economy.

 

[Minai]

Automatic stablisers, in relation to Monetary policy, essentially means policy that automatically responds to cyclical changes - where if the economy is in downturn, interest rates decrease to allow greater consumption to boost aggregate demand, and while inflation gets out of hand, interest rates increase to dampen demand

 

[ignition]

is that the only automatic stabiliser??

aren't there more?

 

[numg]

Um do you mean the stabilisers in the Fiscal Policy? or are they called Inbuilt Stabilisers or something?

Anyway those Fiscal stabilisers are Taxation (revenue) and Welfare (gov spending). These are "automatic" because the government doesn't have to actively do anything, these stabilisers being inbuilt into fiscal policy.

Taxation - When the business cycle is in an upswing, profits and wages are on the rise. The government gets more revenue as more people pay taxes and/or rise into higher tax brackets. This effectively takes money out of the economy reducing aggregate demand.

Welfare - When the business cycle is in a downturn, jobs are lost and unemployment increases. The government must pay out more in welfare payments, injecting funds into the economy and stimulating it.