Question

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. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. Changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. 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. Which of the following are examples of automatic stabilizers? Check all that apply. The federal funds rate Corporate income taxes The discount rate

Answer 1

Answer:

Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses.  

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

The federal funds rate.

Corporate income taxes.

Explanation:

Stabilization policy refers to a strategy that is enacted by a government in which the government tries to maintain a healthy level of economic growth and minimal price changes. This requires active monitoring of the business cycle and adjustment of interest rates. A method that can be used for this purpose are automatic stabilizers. These are mechanisms that are built into government budgets in order to increase spending or decrease taxes when the economy slows down.