How Are Automatic Stabilizers Used To Combat Inflation?

How are Automatic Stabilizers Used to Combat Inflation?


     In today's economy, there are devices present called automatic

stabilizers.  Automatic stabilizers, are mechanisms which aid in the correction

of an economic problem without the interference of anyone or anything.  They are

perhaps most useful to combat demand - pull inflation.  Demand - pull inflation,

is when prices rise because the economy cannot produce enough goods to satiate

the economy.  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.  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 t
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