Automatic stabilisers

Definition: Changes in government expenditure and tax revenue which occur without any change in government policy as GDP increases or falls. Automatic stabilisers will help to dampen fluctuations in the trade cycle. An example would be that in a recession as unemployment rises, the government is forced to pay out more in benefits. This is an "automatic" increase in government expenditure. This increases aggregate demand and helps compensate for the lack of demand in the recession.