Give an Example of an Automatic Stabilizer

question 78

Essay

Give an example of an automatic stabilizer. Explain how automatic stabilizers operate within the economy during a recession and during an expansion.

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Definitions:

Benefits-received Principle

The concept that the amount of taxes an individual pays should be directly proportional to the level of benefits or services they receive from the government.

Ability-to-pay Principle

A taxation principle suggesting that taxes should be levied according to an individual's or entity's ability to pay, typically measured by income or wealth.

Ability-to-pay Principle

A tax principle stating that taxes should be levied according to an individual's or entity’s capacity to pay, typically measured by income or wealth.