How do automatic stabilizers work?

Automatic stabilizers are a form of autonomous adjustment that the economy does in booms and recessions. To understand automatic stabilizers we need to first know how fiscal policy works and know what a business cycle is. A business cycle is just the trend of booms and recessions that the economy follows. The economy doesn't just grow in a linear way but it oscillates on a slight upwards trend. The peak of a cycle is a boom and the trough is a recession. 

FIscal policy uses government spending and taxation to control the economy. To encourage growth expansionary fiscal policy is used, where government spending is increased (budget deficit) and taxation is decreased. The opposite is true for contractionary fiscal policy. Automatic stabilizers work in the same way. In a boom less people are unemployed so government spending on benefits is reduced, at the same time incomes rise so government taxation through taxation is greater. This process automatically applies a "damper" to the economy, making the boom less pronounced .The opposite happens in a recession. This has the overall effect of "compressing" the cycle so that the differences between booms and recessions aren't as pronounced and so make the economy follow a path closer to a linear growth.