Note:- Please give all possible answer for both question options are given below. 8. Using policy to stabilize the economyThe 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.The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates.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.Businesses make investment plans for many months in advance.Which of the following are examples of automatic stabilizers? Check all that apply.Corporate income taxesThe discount ratePersonal income taxes

The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates This is an argument in favour of stabilization policy . Stabilization policy refers to the policy in which government tries to stabilize the economy i.e. protecting it from excessive heating or slowing down. It is done by maintaining a stable price level and a healthy level of growth. Since as mentioned in the statement , there is excessive pessimism in the people , which will lead shift in AD. Therefore to maintain stability , the fed can respond by increase money supply and lowering the interest rate , which would lead to increase in AD.The current tax system acts as an automatic stabilizer. This is also in favour of stabilization policy . Taxes act as automatic stabilizers by offseting fluctuations in economic activity without direct intervention by policymakers. During a boom , taxes decrease the disposable income whereas in recession they increase the disposable income . Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. The above statement is not in favour of stabilization policy . If there would be large shifts in AD as a result of optimism or pessimism of people , the economy cannot remain stable. Large shifts in AD will cause large fluctuations in economic activities.Businesses make investment plans for many months in advance. This is in favour of stabilization policy of government . Instability arises due to changes in expectations and plans . If investment plans are made for longer time periods , this means there would be less changes in Economic actCorporate income taxes and Personal income taxes are two examples of automatic stabilizers. Automatic stabilizers , as the name itself suggest they act to stabilize economic cycles and are automatically activated without additional government action. The corporate income tax and personal income tax are usually progressive . They increases with increase in income and decreases with decrease in income. When incomes are high, tax liabilities rise and eligibility for government benefits falls, without any change in the tax or other legislation. Conversely, when incomes fall , tax liabilities decreases as they now have to pay less in the form of taxes and more families become eligible for government transfer programs.

Answered: Which of the following are arguments in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Note:- Please give all possible answer for both question options are given below.

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.

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

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.

Businesses make investment plans for many months in advance.

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

Corporate income taxes

The discount rate

Personal income taxes

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