6. Using policy to stabilize the economy The government has the ability to influence the level...

6. Using policy to stabilize the economy The government has the ability to influence the level of output in the short run usi

6. Using policy to stabilize the economy

Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply.

The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates.
Businesses make investment plans many months in advance
The current tax system acts as an automatic stabilizer
Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.

Which of the following are examples of automatic stabilizers? Check all that apply

Corporate income taxes
The discount rate
Unemployment insurance benefits

Solutions

Expert Solution

The following are arguments in favor of active stabilization policy:-

-The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates

-Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.

The following are an example of automatic stabilizers:-

-Corporate income taxes

-Unemployment insurance benefits

Rahul Sunny answered 2 years ago

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