1) ** Taxation and transfer payments have the characteristics of automatic increase and decrease in response to economic fluctuations, and then affect the aggregate demand of society, and such fiscal policies and their effects are generally called the automatic stabilizers of the fiscal system.
2) When the economy is in a booming state, people's incomes increase, tax revenues increase automatically and in a timely manner, and transfer payments such as unemployment insurance, poverty relief, and agricultural product support** decrease, helping to curb inflation;In times of recession, tax revenues are automatically and promptly reduced, and various transfer payments are increased, which in turn helps to alleviate the economic recession. As a result, automatic stabilizers are able to reduce the volatility of the economic cycle, reduce the height of the peak, and increase the height of the trough.
3) However, since the automatic stabilizer only reacts to the stability of economic fluctuations, it cannot function before the fluctuations occur. At the same time, it does not adequately regulate social needs and thus does not eliminate the economic crisis. Therefore, in order to achieve the goals of full employment, stable economic growth, and stable prices, it is necessary to rely on the positive effects of fiscal policy.
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