Question

Clearly and briefly articulate and explain in your own words 1 argument used in defense of an active stabilization policy.

Answer 1

The argument for an active stabilization policy:-

If the economy is left alone by the policymakers, then the market will take huge time to adjust itself.  But this long run will be a very long time and organizations and economy cannot wait for such a long period of time.

In order to stabilize the aggregate demand, employment and production level, the policymakers can use fiscal and monetary policies.

When the level of GDP does down to its natural level then in order to avoid any further decline or recession in the economy, expansionary fiscal or monetary policies will be used by the policymakers.

On the other hand when the level of GDP increases more than its natural level, then in order to control or prevent the inflationary boom, the contractionary policy will be used by the policymakers

In this way, the majority of the individuals will be having the advantages of the stable economy.