How Are Automatic Stabilizers Used To Combat Inflation?

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Issue:

Business

 

Written by:

Gerald R

 

Date added:

December 8, 2013

 

Level:

University

 

Grade:

A

 

No of pages / words:

2 / 389

 

Was viewed:

1806 times

 

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Essay content:

An automatic stabilizer, that is beneficial to combat such a problem, is a progressive tax. A progressive tax, is a tax that becomes a higher rate for each increasing level of gross domestic product. If such a tax is present within the economy, when the society becomes more prosperous, such as in the situation with demand-pull inflation, the citizens are taxed more, therefore decreasing the marginal propensity to consume, and decreasing consumption...
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The marginal propensity to consume is the fraction of any change in disposable income spent for consumer goods. If this decreases, demand will not be as high above, or even above where the supply is, therefore reducing the demand - pull inflation. Another way to stabilize demand - pull inflation is to reduce government spendings...
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