3.9: Automatic stabilizers
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progressive income tax system
act to counter-cyclically stabilize the economy
GDP down: tax burden is low, promote consumption
GDP up: tax burden is higher, discourage consumption
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the more progressive the policy
the greater the economy’s built in stability
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unemployment benefits and social service systems
counter-cycially stabilize the economy
GDP down: unemployment is higher so more benefits are paid out. Helps to increase AD and stabilize the economy
GDP up: unemployment is lower so fewer unemployment benefits are paid out, decreaseing AD
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