The nondiscretionary fiscal policy acts as an automatic stabilizer for the economy because when the economy is in recession the payments tend to increase, while the collection of contributions decreases with lower income. When the economy is prosperous the collections increase while the payments decrease. The surplus in prosperity and deficit in recession correlate with the needed policy and act to reduce (but not entirely correct) the existing economic condition.
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The largest unemployment benefits are paid out when unemployment is the highest. Thus, the benefits offset the decreasing income of those out of work. But the benefits are only a small portion of the income foregone: it is only a partial corrective measure. |
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