What are automatic stabilizers and how do they work? Q.What are automatic stabilizers and how do they work? A.Automatic stabilizers are features of the tax and transfer systems that temper the economy when it overheats and stimulate the economy when it slumps, without direct intervention by policymakers. Read more about What are automatic stabilizers and how do they work?
What is the role of monetary policy in alleviating economic downturns? Q.What is the role of monetary policy in alleviating economic downturns? A.Economists view monetary policy as the first line of defense against economic slowdowns—the Federal Reserve can act faster than the president or Congress, and it is better equipped to judge the appropriate timing and magnitude of economic stimulus. Read more about What is the role of monetary policy in alleviating economic downturns?
How do taxes affect the economy in the short run? Q.How do taxes affect the economy in the short run? A.Primarily through their impact on demand. Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity. Read more about How do taxes affect the economy in the short run?
