Explain how automatic stabilizers work, both on the taxation side and on the spending side, first...

Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy is producing more than potential GDP.

Expert Solution

Answer:

•GDP stands for Gross domestic product. In a downturn(recession), the tax deduction will naturally accumulate as income are low and income are low.

•Numerous government assistance and joblessness programs are intended to help the individuals who are qualified in specific classes, for example, "jobless" or "low salary."

•During the downturn, more individuals fall into these classifications and consequently fit the bill for benefits.

•The mix of low assessments and significant expenses requires the economy to deliver not as much as GDP in a downturn. With monetary development, the normal pay level in the economy increments, so more expenses are consequently charged.

•Less individuals have the measures to get government help for the jobless or poor people, so government spending for joblessness help and government assistance will naturally diminish. A high expense and minimal effort economy will just deliver a higher economy than GDP.

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Rahul Sunny answered 2 years ago

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