8. Using policy to stabilize the economy The government has the ability to influ

Question

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 government 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.

a) Businesses make investment plans many months in advance.

b) Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president.

c) The current tax system acts as an automatic stabilizer.

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

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

a) Corporate income taxes

b) The federal funds rate

c) Unemployment insurance benefits

Explanation / Answer

1.Active stabilization policy is the policy that changes taxes and transfer payments to redistribute wealth without any government intervention.

Answer-C and D

The advocates of this policy believe the fed and government can change monetary and fiscal policy to counteract excessive optimism or pessimism in the economy.

2.All the above are examples of automatic stabilizers because they adjust automatically according to changes in the economy.

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.