Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 29, Problem 2.2P
To determine
Difficulties in stabilization policies
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Answer the following questions about stabilization policy.
What do we mean by stabilization policy?
Why do some policymakers support active stabilization policy?
Why do some policymakers prefer a passive approach?
are anti-inflationary policies effective when there are adverse supply shocks? which monetary or fiscal policy would be more effective?
Why do economists often disagree about the conduct of macroeconomic stabilization policy?
Chapter 29 Solutions
Principles of Economics (12th Edition)
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- Show graphically that the less responsive is investment to interest rates, the less effective is monetary policy as a stabilization tool.arrow_forwardConsidering what you've learned about both fiscal and monetary policy, what are some of the benefits you might see from using monetary policy instead of fiscal policy to address common economic downturns? What could be some of the disadvantages?arrow_forwardMany central banks now indicate that their primary objective is to keep inflation at a persistently low rate. If the rate of inflation is persistently low, will this help reduce the instability of the business cycle? Why or why not?arrow_forward
- If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer.arrow_forwardHow can monetary policy address the problem of inflation?arrow_forwardMany economists believe that there is a long and variable time lag between the time a change in monetary policy is instituted and the time its primary impact on output, employment, and prices is felt. If true, how does this long and variable time lag affect the ability of policy-makers to use monetary policy as a stabilization tool?arrow_forward
- Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy. a.true b.falsearrow_forwardwhat type of fiscal policy or monetary policy that is currently being implementedarrow_forwardX 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. Businesses make investment plans many months in advance. Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. The current tax system acts as an automatic stabilizer. Which of the following are examples of automatic stabilizers? Check all that apply. Unemployment insurance benefits Corporate income taxes The discount rate C O 1:24 PM 4/29/2022arrow_forward
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