Question

The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments against active stabilization policy by the government? Check all that apply. Select one or more: a. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates b. Businesses make investment plans many months in advance c. Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president d. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses

Answer 1

Answer

c. Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president d. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses

The above two options are arguments against active stabilisation.

The first option is time consuming, often there is a dely for economis to actually understate the state of nature in the economy, this decision making again aggrevates the situation by taking more time.

The 2nd option is an agrugument as there is no such strong proof as to the reason tax and expenditure changes actually does has any effect on the economy. Its based on mere assumptiton and correlation.

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