Tuesday, January 6, 2009

On automatic stabilizers

Often the role of automatic stabilizers is discussed with the argument going that in a recession the fall in real output/income is not as severe if unemployment benefits are part of the institutional framework. This is the case at least for more developed economies.

As the decrease in economic activity increases (cyclical) unemployment, unemployment benefits automatically kick in for those who lose their jobs permitting them to continue spending and thus creating some demand for output that others produce.

But what if ...

(...read this to find out - interesting, short, easy to understand; plus, potentially useful for evaluations)

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