Question

Explain why each of the following statements is a rationale for conducting active or passive policy: Economic circumstances can change dramatically between the time that an economic downturn begins and the time when policy actions have an effect on the economy. Economists are not very accurate forecasters. Increases in government spending generate increases in economic output. Fluctuations in economic output have been less severe since World War II.

Answer 1

Answer:

The rationale for conducting active policy is the interest of Congress to alter the state of the economy through a deliberate change in established policies.

But in the case of Passive policy, the government permits the status quo.

Active policy relies on the government to enforce it while passive policy does not need the government's interference to work in stabilizing the economy.

Explanation:

The following statements applies passive policy because the economy is expected to stabilize on it's own without the deliberate act of congress influencing it:

• Economic circumstances can change dramatically between the time that an economic downturn begins and the time when policy actions have an effect on the economy.
• Fluctuations in economic output have been less severe since World War II.

The following statements is a rationale for conducting active policy since the government's intervention is required:

• Economists are not very accurate forecasters.
• Increases in government spending generate increases in economic output.