The resulting theory includes a realistic array of automatic stabilisers, such as unemployment benefits and progressive income taxes. The authors are able to quantify a number of mechanisms by which automatic stabilisers may work. One lesson is that unemployment benefits are especially effective in supporting aggregate demand in a recession.
People who become unemployed reduce their consumption sharply, in particular if their period of unemployment is likely to be prolonged. Moreover, those who remain employed increase their precautionary savings in a downturn as the probability of losing their job 2/4  BIS central bankers' speeches  rises. In this environment, more generous unemployment benefits have strong effects on aggregate spending.