What distinguishes automatic stabilizers from discretionary fiscal policy?

Automatic stabilizers are fiscal mechanisms that inherently adjust government spending and taxation levels in response to changes in economic conditions without explicit intervention. This means they function automatically to help mitigate fluctuations in economic activity, particularly during periods of recession or expansion.

For instance, during an economic downturn, automatic stabilizers like unemployment benefits and progressive tax systems come into play, leading to increased government spending and reduced taxation as more individuals qualify for benefits or pay lower taxes due to decreased income. This injects support into the economy without the need for new legislation or government action, helping to boost demand and stabilize the economy.

On the other hand, discretionary fiscal policy involves deliberate decisions made by policymakers to influence the economy, such as increased government spending or tax cuts that have to be enacted through legislation. This process requires time and can often be subject to political debate, making it less immediate than the effects of automatic stabilizers.

Thus, the defining characteristic of automatic stabilizers is that they operate automatically as part of the economic framework, responding passively to economic changes without the need for further governmental action, which is why the correct choice indicates that automatic stabilizers are built-in features that work without deliberate action.