Automatic Stabilizers Start Stabilizing the Economy as Soon as It

question 34

Essay

Automatic stabilizers start stabilizing the economy as soon as it deviates from its normal course. Explain with an example how this works in a recession.

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Definitions:

Loss Aversion

In prospect theory, the property of most people’s preferences that the pain generated by losses feels substantially more intense than the pleasure generated by gains.

Behavioral Economics

A field of economics that studies how psychological, cognitive, emotional, cultural, and social factors affect economic decisions of individuals and institutions.

Loss Aversion

A cognitive bias where individuals fear losses more than they value equivalent gains.

Company Retirement

Often related to the benefits or pension schemes planned for employees after they retire from a company, differing from mandatory retirement policies.