Automatic stabilizers are mechanisms within the fiscal policy framework that automatically adjust government spending and taxation levels without the need for explicit legislative action in response to changes in economic conditions. When the economy experiences a downturn, for example, government spending tends to rise (due to increased unemployment benefits and social welfare programs) while tax revenues naturally decline (as incomes fall and individuals pay less in taxes). This injects money into the economy, helping to dampen the effects of the recession.
Conversely, during periods of economic growth, tax revenues increase, and spending on such welfare programs typically decreases, helping to cool off an overheating economy. This automatic adjustment occurs without the need for new laws or further government intervention, making it a proactive tool of fiscal policy that works in a countercyclical manner.
The other options present mechanisms that require more direct intervention or are unrelated to the automatic adjustments made by government policies regarding taxes and social spending in response to economic fluctuations.