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Automatic Stabilisers (MCQ Revision Question)
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 9 Jun 2017
Here is a question asking when automatic stabilisers in the macroeconomy will be more effective.
Automatic stabilisers are fiscal changes that happen as an economy moves through different stages of the business cycle:
- E.g. a fall in tax revenues from the circular flow in a recession
- E.g. a rise in welfare spending injected into the circular flow during a downturn
- Higher income tax rates mean that the government takes more tax revenue out of the economy when real incomes and employment are expanding
- Increased unemployment benefit rates mean that out of work incomes will be more generous for people when they lose their job in a recession
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