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MBA FP 6008 McAndrewVanessa Assessment3 Attempt1

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Running head: ECONOMIC ANALYSIS 1
Economic Analysis 3
Vanessa McAndrew
MBA- FP 6008 U03A1 Possibilities: Economic Analysis 3
Capella University
Professor Dr David Wolfe
March 2, 2018

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ECONOMIC ANALYSIS 2
Economic Analysis 3
Part 1
Automatic stabilizers are some of the widely acknowledged and applied smoothening
agents of any fiscal policy in a country. Through the stabilizers, the economic fluctuations can be
offset without just depending on government action application (McKay & Reis, 2016). The two
main types of automatic stabilizers are transfers and taxes which assist in the reduction of
fluctuations in disposable income by enhancing the aggregate demand at the times of recessions
and reduces the aggregate demand at the time of expansions. On the other hand, transfers are
government outlays that are meant to improve the social welfare of individuals. Examples of
transfers may include the food stamps and the unemployment benefits. However, when the
government levy taxes on the income of persons, corporations and goods and services it is
termed as taxes.
The automatic stabilizers work by affecting the aggregate demand (AD) in an economy.
At the times of inflation or periods of economic expansion, increase in the income of persons
only leads to the improvement in the overall tax liability of individuals. The end result is that the
persons are left with just less disposable income and consumption income ultimately reduce. On
the other hand, economic expansion reduces the number of persons who rely on food stamps.
Additionally, it also leads to a reduction in government outlay on the unemployment benefits
given that the chances in employment areas increase during economic expansion. Given that AD
is a function of both government and consumption expenditure, the result is a decline hence slow
economic expansion (Dolls, Fuest & Peichl, 2011).

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Running head: ECONOMIC ANALYSIS Economic Analysis 3 Vanessa McAndrew MBA- FP 6008 U03A1 Possibilities: Economic Analysis 3 Capella University Professor Dr David Wolfe March 2, 2018 1 2 ECONOMIC ANALYSIS Economic Analysis 3 Part 1 Automatic stabilizers are some of the widely acknowledged and applied smoothening agents of any fiscal policy in a country. Through the stabilizers, the economic fluctuations can be offset without just depending on government action application (McKay & Reis, 2016). The two main types of automatic stabilizers are transfers and taxes which assist in the reduction of fluctuations in disposable income by enhancing the aggregate demand at the times of recessions and reduces the aggregate demand at the time of expansions. On the other hand, transfers are government outlays that are meant to improve the social welfare of individuals. Examples of transfers may include the food stamps and the unemployment benefits. However, when the government levy taxes on the income of persons, corporations and goods and services it is termed as taxes. The automatic stabilizers work by affecting the aggregate demand (AD) in an economy. At the times of inflation or periods of economic expansion, increase in the income of persons only leads to the improvement in the overall tax liability of individuals. The end result is that the persons are left with just less disposable income and consumption income ultimately reduce. On the other hand, economic expansion reduces the ...
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