Monetary and Fiscal Policies

Published: 2018-12-13 02:56:38
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The examination of automatic stabilizers

In the examination of automatic stabilizers, there is the need to understand the meaning the same and how they work in the various social structures in the modern society. Automatic stabilizers are programs and policies that are designed to aid in the offsetting of fluctuations in the economy of a country without the aid or the intervention of the policy makers or the government working on an individual basis. Some of the known economic stabilizers in economies in the modern society are such ad corporate and personal taxes in addition to transfer systems which include welfare and unemployment insurance. The reason why they are called so is because they work to stabilize economic systems and the function without efforts by the government to make the into action. They become effective in that they seek to put a balance between incomes and tax liabilities thereby helping to put a balance in the economic systems. This is because increase in income lead to the increase in tax liabilities and fall of eligibility for government benefits on the occasions when there are no changes in tax code or other legislations (Fagiolo et al., 2014). On the other hand, when there is a decrease in employment, there is a drop in liabilities which makes a higher number of families in the population to become eligible for government transfer programs among them being unemployment insurance and food stamps to help in buttressing the income of citizens.

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The degree at which Canada stabilizers are extensive in Canada is of great importance and the same proves the need to examine the same and help in enlightening the population to acknowledge importance of the same. The degree of the effect of automatic stabilizers in the population is evident in the stabilization policies in the country and the benefits they have in the economy. In this manner, there is the need to appreciate the role of the same in ensuring that monetary policy become effective in the society. The Canadian monetary policy plays a crucial role in ensuring that there is a 2 percent inflation in the economy over the target of between 18- and 24-month horizon (Fagiolo et al., 2014). The monetary policy ensures that the economy works in response to the demand and supply shocks with the view if improving living conditions of the population. In this case automatic stabilizers ensures that the direction of change of policy interest rate is clear and responds to the shifts in demand of the population.

Automatic stabilizers are very adequate to perform the mission they are supposed to perform and this is evident in the various types of tax stabilization in the economy and employment insurance payouts. There is the need for the population to acknowledge effectiveness of automatic stabilizers in creating a change in the population with immediate effect. An example of the way such stabilizers work effectively and immediately is established in the tax deducted by the employers; this is in addition to documents such as the employments insurance payments which work with short lags. Furthermore, the automatic stabilizers are very effective in the Canadian economy in that they help in dampening an output although they help in offsetting the only a part of the change in output (Fagiolo et al., 2014). The effectiveness of the automatic stabilizers in the economy proves the need for the population to acknowledge the benefits of the same and help in the improvement of living conditions of the population.

References

Fagiolo, G., Treibich, T. G., Roventini, A., Napoletano, M., & Dosi, G. (2014). Fiscal and monetary policies in complex evolving economies (No. 006).

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