Have American Income Stabilizers Become More Effective in Dealing With Income Shocks?

Automatic stabilizers are at the basis of nation’s defense against shocks in their economies. Automatic stabilizers are mostly defined as elements of fiscal policy that mitigate output fluctuations without discretionary government action. During economic downturns aggregate demand decreases, government spending automatically increases, which raises aggregate demand and government revenue automatically, decreases. The goal of automatic stabilizers during a recession is to offset the decrease in aggregate demand. During economic booms government spending automatically decreases in order to prevent the formation bubbles in the economy. In short an automatic stabilizer is a budgetary policy that automatically (meaning without the need for action from the government) stabilizes the fluctuations in GDP