Economist Mark Thoma observed, "One of the difficulties in using fiscal policy to combat recessions is getting Congress to agree on what measures to implement.... Automatic stabilizers bypass this difficulty by doing exactly what their name implies." What are automatic stabilizers? Name two examples of automatic stabilizers and explain how they can reduce the severity of a recession.

Automatic stabilizers are defined as factors in an economy's fiscal policy that automatically counteract economic fluctuations without the need for any new government action. They are designed to lessen the impact of changes in the economy, such as inflation and recession.

Two examples of automatic stabilizers are unemployment benefits and progressive taxation. \[ \text{a. Unemployment benefits:} \] When the economy goes into recession, workers begin to lose their jobs and collect unemployment benefits. These benefits provide a safety net, allowing them to continue spending, thus providing some stability to the overall economy. \[ \text{b. Progressive taxation:} \] This tax system requires higher-income individuals or corporations to pay a higher percentage of their income in taxes and those with lower incomes to pay a lower percentage. During times of economic prosperity, this helps to prevent overheating by reducing disposable income and consumption. At the same time, during a recession, tax bills fall, which leaves consumers with more disposable income to stimulate demand.

Automatic stabilizers such as unemployment benefits and progressive taxes can help reduce the severity of a recession without any additional action from the government. Unemployment benefits support people who have lost their jobs to continue spending, while progressive taxes can result in lower tax bills, leaving consumers with more disposable income. Both of these actions help prop up demand and prevent sharp declines in economic activity during recessionary periods.