How Are Automatic Stabilizers Used To Combat Inflation? :: essays research papers

How ar Automatic Stabilizers Used to Combat Inflation?In todays economy, there be devices present called automaticstabilizers. Automatic stabilizers, are mechanisms which aid in the chasteningof an economic problem without the interference of anyone or anything. They areperhaps nearly useful to contend demand - protract inflation. Demand - pull inflation,is when prices cash advance be seduce the economy cannot produce enough goods to satiatethe economy. An automatic stabilizer, that is beneficial to combat such aproblem, is a industrial revenue. A progressive tax, is a tax that becomes ahigher rate for each increasing take aim of gross domestic product. If such a taxis present within the economy, when the society becomes more prosperous, such asin the situation with demand-pull inflation, the citizens are taxed more, therefrom decreasing the marginal desire to consume, and decreasingconsumption. The marginal propensity to consume is the fraction of any changein disposab le income fagged for consumer goods. If this falloffs, demand willnot be as high above, or even above where the supply is, therefore reducing thedemand - pull inflation.Another way to stabilize demand - pull inflation is to boil down governmentspendings. Government spendings, are the spending that the government make withthe tax revenues, and they add to the gross domestic product. An automaticstabilizer that will move gross domestic product is welfare. As income rises,there are slight(prenominal) people who need welfare, therefore reducing the amount ofgovernment spending, and great(p) the gross domestic product.Due to such automatic stabilizers as progressive tax rates and thedecrease of government spending due to welfare, therefore a decrease ingovernment borrowing, therefore a decrease in the demand for the dollar,therefore a decrease in the refer rate, which would cause a decrease in theforeign demand for dollar, which would cause the dollar to depreciate, thereforelower ing inflation due to a less valuable dollar.