Wage flexibility keeps output close to its potential level

Output fluctuates because of fluctuations in aggregate supply

Aggregate supply fluctuates because of fluctuations in the demand for labour

Labour demand might fall if technology increases faster than expected

It believes the supply of labour is inelastic

It requires a run of positive or negative technology shocks to explain why peaks and troughs may last for protracted periods

It believes that unemployment is a result of people’s choices and need not concern the government

Few economists regard it as offering the main explanation of business cycles

The stabilizer arises because if an economy moves into a recessionary gap, tax revenues fall and transfers rise, while if it moves into an inflationary gap, tax revenues rise and transfers fall

The stabilizer means that if the government balances its budget when output is at its potential level, then it will have a deficit in a recessionary gap and a surplus in an inflationary gap

If output moves away from its potential level, the stabilizer ensures that it will eventually return to it

The stabilizer would be stronger if the government imposed higher taxes on people with high incomes and paid higher transfers to the unemployed

It makes output changes smaller than they would otherwise be, but prices changes larger than they would otherwise be.

It makes output changes the same as they would otherwise be, but prices changes larger than they would otherwise be

It makes both output changes and price changes smaller than they would otherwise be

It makes output changes the same as they would otherwise be, but prices changes smaller than they would otherwise be

Even if a country acquired no extra resources, its output could grow

Even if a country had no technological progress, its total factor productivity could increase

Even if a country’s workforce stayed the same, there could be an increase in human capital

If a country’s GDP per head rose by 3% a year, it would take about 33 years for its output GDP per head to double