Automatic stabilisers - a useful chart.

The role of automatic stabilisers in a recession or boom is an important topic and hopefully this chart will stimulate a bit of interest and discussion - and there is a bit more beyond the obvious to extend your top students!

The chart shows that in the past 40+ years in the U.S economy, there is a clear link between the unemployment rate and the rate of government spending as a percentage of GDP. This can be used to support the basic idea of automatic stabilisers - when unemployment increases the government will spend more on welfare benefits (and of course receiving less tax revenue).

As an extension topic for your top students, you might like discuss the following ideas.

Firstly, what is the role of ceteris paribus in the graph - what other factors might impact on the graph - I’m thinking specifically of the U.S defence spending.

Secondly, while it could be assumed that there is clear causation and correlation (the increased unemployment leads to higher government spending) some would argue that in fact there is significant causation in the opposite direction ie the higher government spending is leading to increased unemployment levels. This is an “anti-Keynesian” argument and the basic premises are summarised on the Carpe Diem site, and you can also find here the original source of the graph.