Due Today at 11:59 PM EST Back to Assignment Keep the Highest:/2 Attempts 8. Usi

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Due Today at 11:59 PM EST Back to Assignment Keep the Highest:/2 Attempts 8. Using policy to stabilize the economy 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 govemment should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. The current tax system acts as an automatic stabilizer. Shifts in aggregate demand are often the result of waves of pessimism or The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates mism among consumers and businesses. Businesses make investment plans many months in advance. Which of the following are examples of automatic stabilizers? Check all that apply. Personal income taxes The discount rate Corporate income taxes Grade It Now Save & Continue Continue without saving

Explanation / Answer

The argument in favor of active stabilization is "The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering the interest rates ". If there is pessimism in the economy the Fed can lower the interest rates and make the cost of capital lower thereby increasing investments and boost the demand.

"Personal income tax" and "Corporate taxes" are a very good example of the automatic stabilizer.

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