Answer to Question #225107 in Macroeconomics for Sara

Question

Why do we call mechanisms such as proportional income taxes and the welfare system auto-

matic stabilizers ? Choose one of these mechanisms and explain carefully how and why it 

affects fluctuations in output.

Answer 1

 we call mechanisms such as proportional income taxes and the welfare system auto-matic stabilizers because they act to stabilize economic cycles and are automatically activated without additional government intervention.

income tax collections decrease along with income and profit in times of recessions.

This is because taxes have a stabilizing effect and they tend to change automatically with change in economic growth.