Which of the following best describes most economists\' approach to economic sta

Question

Which of the following best describes most economists' approach to economic stabilization until the 1930s?

Use a sound finance approach during normal economic times, and a functional finance approach during a recession or a boom.

Maintain a balanced budget at all times, under the principle of sound finance.

Run larger deficits during recessions and smaller deficits during economic booms, counting on economic growth to be high enough to keep the debt-to-GDP ratio low.

Economists were wholly concerned with microeconomics and had ignored problems of government deficits, debt, recessions, and economic growth.

Use a sound finance approach during normal economic times, and a functional finance approach during a recession or a boom.

Maintain a balanced budget at all times, under the principle of sound finance.

Run larger deficits during recessions and smaller deficits during economic booms, counting on economic growth to be high enough to keep the debt-to-GDP ratio low.

Economists were wholly concerned with microeconomics and had ignored problems of government deficits, debt, recessions, and economic growth.

Explanation / Answer

Before 1930s, most economists' advocate the sound finance approach.

This approach stresses on balanced budget being undertaken by the government at all times.

There should be no budget deficit on it leads to resources being taken away from private enterprise and does not lead to any addition to national product.

So,

Most economists' approach to economic stabilization until the 1930s was to have balanced budget at all times, under the Principle of Sound Finance.

Hence, the correct answer is the option (2).

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