Example Question #1 : Employment
Which of the following is an example of an automatic stabilizer?
Deficit spending by governments
Expansionary monetary policy by a Central Bank
Unemployment insurance is an example of an automatic stabilizer. An automatic stabilizer is something that stabilizes real economic output in the event of recession. Because unemployment insurance gives workers that have been laid off some money, it is considered an automatic stabilizer, because it lessens the damage that laying these workers off will have on the consumption component of GDP.